The recession and its effect on brands and consumers

Profits at tech companies like Google and Apple generally beat expectations, but executives said there are signs of some niche slowing in consumer spending. Both Walmart and Best Buy warned that when they report earnings in August, it will be worse than expected — primarily because of changes in consumer habits. Anyone who believes that consumers are going back to their free-spending ways is delusional.

Consumers still spend money, but inflation means more goes to gas and necessities and less to categories like clothing and electronics. Unemployment remains low, but some companies are slowing hiring, and a few are beginning to lay people off outright.

Walmart chief executive Doug McMillon said that food and fuel prices are cutting people’s ability to buy clothing and other goods. Those dynamics hint that Americans are beginning to be careful about what they spend their money on.

Consumers don’t like seeing corporations having record earnings the last couple of quarters and then being told of supply chain problems, refining, or whatever is to blame for higher consumer prices.

Consumer spending still rose in June, but much of that was because things cost more, and wages aren’t growing as fast, so people are cutting into their savings when shopping, according to data released Friday by the government’s Bureau of Economic Analysis. Some categories, like clothing and electronics, are down, and people are spending more on housing, food, and gas.

Consumers are not only worrying that they have less money to spend after filling their fridges and cars, but retailers also say: more of their discretionary spending is going on experiences they missed out on earlier in the coronavirus pandemic, such as travel and eating out, rather than on clothes, furniture or appliances.

Some Americans are saying it’s a new normal, and they’re cutting spending on some items to pay for other things like vacations. When a Starbucks customer realizes their daily coffee habit costs almost $200 a month, they are trading down. As one said, “I used to stop at Starbucks every morning on the way to work, but now I just carry coffee from home in a thermos.”

Consumers are sending mixed signals about their desire to spend. The University of Michigan’s index of consumer sentiment reached the lowest level in its 70-year history in June, and Best Buy this week said that spending on consumer electronics had “softened even further” since May.

What are retailers doing? Some are cutting prices on overstocked items. For example, Walmart’s growth was built on aggressively competitive prices and the tempting promotions it calls “rollbacks.” But it is now having to resort to more markdowns than planned, mainly to shift inventory in apparel. Target warned in May that it would have to discount products and cancel orders to clear excess stock in categories from televisions to outdoor furniture. Bed Bath & Beyond, Macy’s, and Gap have recently admitted to similar inventory troubles.

One of the challenging issues for retailers is shipping rates on products they order. Ocean shipping rates have fallen from last year’s peak but are still far above pre-pandemic levels. Last week, it cost on average $6,593 to ship a 40-foot container from Asia to the U.S. west coast, according to Freightos. That is down two-thirds year on year but still over four times what importers were paying in 2019.

What about branding?

Fifty-four percent of consumers said they would stop using a brand after just one bad experience, with millennials being the most likely to cut the cord (57%). A recent poll of 2,000 U.S. adults found inconsistent or obsolete online product information is the №1 deal-breaker (24%) for consumers who “break up” with a brand they use. However, half the poll (51%) also say a great online or social media experience, such as fast replies to their questions, funny posts, and detailed how-to videos, would convince them to give the brand another try.

Two-thirds would be willing to switch brands if their initial experience with a new one is a cut above, according to the survey conducted by OnePoll on behalf of Propel Software. Fifty-eight percent have recently switched from a brand they used to love to its competitor. Almost half (47%) were enticed by an enhanced product experience, such as access to accessories, a better online community, or how-to videos.

The survey also revealed seven in 10 (69%) remain loyal to the brands they used growing up. People’s favorite brands that often carry into adulthood include kitchen appliances (65%), recreational products such as sporting goods or camping gear (63%), electronics (60%), and office or school supplies (51%).

People listen to their spouses more than anything else when it comes to what brands are good (39%), beating out third-party reviewers (31%), celebrities (30%), and social media influencers (29%). However, recent changes in brand loyalty were most common for office or school supplies (53%), packaged goods such as soda, snacks, or cereal (52%), and recreational products (52%).

Even though people love their favorite brands, respondents note that doesn’t mean they won’t consider competitors, especially if they turn out to be better listeners.

What to make of all this?

1ne: Your customers are unique to your product category. Listen to current customers and enhance the relationship through multi-touch points.

2wo: Consumers are putting their pleasures first, such as vacations. To do this, they make choices based on price(s).

3hree: It’s doubtful that gas prices will go below $3.00. Consumers who need to use their cars are going. To have to make tradeoffs to pay for higher-priced items. How does your brand compare to others, and will customers be willing to trade down?

4our: Expect the media to make a massive splash about upcoming layoffs. If Facebook, for example, lays off 10% of its staff, it will shake the financial markets.

5ive: It may be betterto shelve growth forecasts and focus on lowering costs.

6ix: Some brands are cutting advertising, but this could be the wrong approach. Steve Jobs consistently increased advertising in an economic downturn.

7even: Promotions can help, but your brand could be too dependent on discounts.

The “times they are a changing” and marketers need to need think strategically.

Originally published at on July 31, 2022.



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