The U.S. consumer has been on a roller coaster over the last few years. The pandemic and ensuing supply chain concerns gave way to pent-up demand for in-person retail experience and inflation spike. Despite the unparalleled disruption, U.S. consumers remain, according to Colliers’ Spring 2023 Retail Report, “cautiously confident,” a strong sign of the sector’s resiliency.
Anjee Solanki, Colliers’ national director, retail services & practice groups, notes that while inflationary pressures have consumers generally exercising caution, retailers looking to satisfy demand should examine the impact on individual income brackets and how consumers have responded to a tighter budget.
An “Obvious” Difference in Spend By Income Bracket
In the face of economic and psychographic variables such as inflation and consumer preferences, retailers must control what they can. That includes constant analysis of retail spending across consumer income groups.
“The divide between the different income sectors will be more obvious in how they spend,” Solanki said. “Understanding these differences can help retailers effectively tailor their product offerings, pricing strategies and marketing campaigns to target each income bracket. Retailers can also use this information to identify opportunities for growth and expansion, such as introducing new product lines or expanding into new markets.”
From 2019 to 2022, lower-income consumers (less than $52,000 per year salary and 29.1% of the total US population) mainly focused on grocery and apparel, middle-income consumers (between $52,000 and $156,000 and 50.2%) divided discretionary spending evenly across home and beauty categories, and high-income consumers ($156,000+ annually and 20.7%) mainly spent on high-end homes and groceries, according to Colliers’ study of retail spend.
Low-income consumers, which tend to be the most vulnerable to inflationary pressure given their limited purchasing power, have helped dollar store sales increase by nearly 30% since 2019. Middle-income consumers, in addition to reducing spending on discretionary items, may also consider shopping for lower-priced alternatives and/or taking advantage of sales and discounts more often. High-income consumers will continue to purchase luxury, but also shop for everyday value-driven products. Likely to be more selective in their purchases, they focus on higher-quality goods and services less affected by inflation or look for opportunities to invest in assets that hedge against economic uncertainties.
How Inflation Is Shaping Retail Opportunity
Solanki reminds that though consumers might be cautious from a budget standpoint, this has led to increased efforts to find value, including comparison shopping and advanced online research.
“With the slight rise of e-commerce and the availability of product listings online, consumers now have more options to make informed decisions,” she said. “As a result, the pressure is on retailers and brands to offer premium products and competitive pricing to meet consumer demand.”
Rising inflation and labor shortages are ongoing challenges for the retail sector, as are the emergence of changing consumer behaviors. But they also bring opportunity for those retailers who can achieve separation by harnessing new progressive technologies and better segmenting psychographics to elevate their ability to influence consumers.
“Retail continues to be a critical driver of the U.S. economy,” Solanki said. “Overall, the current state of the U.S. retail market remains uncertain but holds promise for retailers who can quickly adapt, innovate and create efficiencies operationally to meet their consumer needs. With that, we believe retail spend year over year will continue to see a 3% growth rate, as it has since 2011. ”