Retail Demand Is A Tale Of Two Consumers

Softening consumer demand will require retail products that attract both value seekers and luxury buyers, according to a new analysis from The NPD Group.

General merchandise unit sales in the US in April were 7% lower than a year ago, leading to a 1% decline in sales revenue.  And as inflation continues to push up pricing, analysts there say differences in household spending that came into sharp focus in 2021 will continue to be more pronounced this year. In particular, higher-income consumers are increasingly responsible for an ever-larger share of online retail sales.

 “Higher retail prices have buffered demand declines but their escalation, combined with rising gas prices, the end of stimulus payments, and the general uncertainty surrounding current economic and world events, are factors on the minds of many consumers,” said Marshal Cohen, chief retail industry advisor for NPD. “Now retailers are faced with a consumer base that has more complex financial dynamics influencing their inclination to spend.”

NPD says shoppers at the upper end of the income spectrum will be less affected by rising grocery and gas prices, whereas lower-income consumers will feel more of the pinch.  But in a recent NPD survey, consumers who received a tax refund by March 2022 said they’ll use the money toward general household expenses, concerts and other experiences outside the home, fashion products (including clothing, footwear, accessories), technology products, and increasing their savings.

And three-quarters of consumers polled said the current geopolitical environment is influencing how they think about travel and transportation, and how they shop. As of April 2022, two-thirds said they’d scale back their driving, travel plans, and retail spending.

“Today’s consumer behavior is multi-dimensional so a varied retail approach will be needed in the coming months,” Cohen said. “For lower- and middle-income consumers feeling more economic uncertainty, retailers and manufacturers need to sharpen the value side of their product offerings, while also providing higher-income consumers with products that will motivate them to spend rather than save.”

Core retail sales hit a new record in March, according to the National Retail Federation, which predicts an overall increase of 6 to 8% this year. And Marcus & Millichap data reveals that in March, consumers spent $468 billion, up 6% from last year and 24% from pre-pandemic numbers. Inflation adjusted core retail sales were 1.1% from last year and a gain of 15.6% over pre-COVID numbers.

“That’s really healthy growth, and it’s broad-based, including gains in about every retail subsector from building materials to apparel to restaurants,” says John Chang, senior vice president and director of research services at the firm. “When I talk to investors most are shying away from the retail sector, and for that I blame the press. It seems like they’re always down on retail, highlighting how the sector will be crushed by e-commerce in some fantastic retail apocalypse…there’s always some churn in the retail sector, but overall the retail industry continues to reinvent itself and perform.”