Inflation-weary consumers are still spending online, just not as much
Stephanie Stuckey is one of a long line of family executives, but the CEO of convenience store chain Stuckey’s has drawn on some old advice from her grandfather to get through the current economic climate.
In a LinkedIn post a few weeks ago, Stuckey shared a relative’s wisdom regarding the $5 Rule.
“My grandfather had a strategy for dealing with high prices at the pump,” she wrote. “Whenever it cost Stuckey’s customers more than $5 to fill up their tank, that was the tipping point where they began to spend less at his stores. So he adjusted his inventory to stock up on essentials like snacks and drinks and bought fewer novelties. Imagine… people bought fewer rubber crocodiles and snow globes when they had less money!”
Today, Stuckey’s changed that $5 rule to $100, but the philosophy has remained the same.
“His advice still applies,” the LinkedIn post continued. “We are seeing stable sales for our snack and confectionery items – and reduced demand for our novelties – and are adjusting our inventory levels accordingly.”
The same changes Stuckey’s is seeing in its convenience stores are playing out in the e-commerce market as inflation grips the economy and shows few signs of slowing. On Wednesday, the Bureau of Labor Statistics reported that inflation rose 9.1% in June from June 2021. This was the fastest annual rate since November 1981 and exceeded analysts’ expectations. Even taking food and energy prices out of the equation, the core CPI slowed only slightly — to a rate of 5.9%.
Inflation-adjusted earnings fell 1% in June and 3.6% year-on-year, the BLS reported. However, inflation is not affecting all regions of the country equally, and this is particularly true for e-commerce and the broader retail sector. While e-commerce will top $1 trillion in sales this year, accounting for 22.1% of the total retail market share (excluding autos and gasoline), it too is feeling the effects of inflation.
retail sales are increasing
Nick Mangiapane, Commerce Signals’ chief marketing officer, told Modern Shipper that his firm is seeing a shift due to inflation. For example, in the first half of this year, total retail is up 8.4% in terms of purchase volume, but the average transaction (dubbed a “ticket” by Commerce Signals) grew just 1.2%, despite inflation Prices strongly drives higher.
“I don’t generally believe that retail is immune to inflation,” Mangiapane said. “I think that’s likely [people are substituting for lower-priced items].”
Commerce Signals collects credit card and debit card transaction data from over 40 million US homes. While the data doesn’t show what people are buying, it does indicate how much they are spending. Mangiapane said all trade channels increased in transaction volume by 4.8%, with online transactions up 6.1% and in-store transactions up 4.6%. This compares to the index which is trending up and is now above 9% as reported on Wednesday.
“The CPI is trying to compare apples to apples, and I have a bit of a mix [in our data]’ Mangiapane said. “For example, if people are eating inside more than going out, that’s a lower average ticket price.”
Small companies feel the inflation crunch
In August 2021, the U.S. Census began asking small businesses across the country what they pay for goods and services as part of its Small Business Pulse Survey. At the time, 29% said they had experienced large price increases since March 2020.
The survey asked business owners whether they faced large or moderate price increases. Companies are expected to pass on these additional costs. As of April this year, 41% of owners said they had experienced large price increases in the previous six months, and another 38% said they had experienced moderate price increases.
But where is inflation hitting the hardest? NerdWallet sifted through the data and found that those in Nebraska (88%), Wisconsin (87%), Arkansas (86%), and South Dakota (86%) experienced the inflation-driven price increases. Overall, the news agency found that in 24 states, at least 80% of their small businesses reported price jumps.
In no state did fewer than 67% of small businesses report price increases (large and moderate increases combined), although Delaware (67%) reported the best overall performance. Hawaii, Nevada and West Virginia all came next with 71%, followed by Virginia (72%), Mississippi (73%); and California, Puerto Rico, Utah and Wyoming (74%)
Among the states with the largest increase in net inflation, Arkansas also ranked as the worst state according to Commerce Signals data in terms of year-over-year average ticket growth, with a 3.3% decline in the average fare, according to NerdWallet. Nebraska, which had the largest increase in net inflation, saw its average ticket price fall 1.8%, and Kansas, which ranked fifth in the NerdWallet study, saw a 1.5% drop.
Inflation drives down the average transaction
Overall, 17 states in Commerce Signals data showed a decrease in average ticket prices. But in NerdWallet’s analysis, only three of the top 10 worst states for cost increases also showed a drop in ticket value. Commerce Signals didn’t provide data for two states — Wisconsin and Kentucky — and the rest of the top 10 showed average ticket price increases, led by South Dakota’s 3.4% increase.
Mangiapane noted that the data indicates consumers are looking for alternative product options in general retail. The result has been a mixed e-commerce experience as consumers in each state deal with inflation differently.
Trade signals showed that consumers in several states continued to spend more on goods, led by New Hampshire’s 10.9% increase in the average ticket price, which falls in the middle of the field in NerdWallet analysis. South Dakota ranked fourth in the NerdWallet survey, with 51% of small businesses saying goods and services increased by a moderate amount, and another 35% said costs increased by a large amount. However, the average ticket price in South Dakota is up 3.4%, according to Commerce Signals.
Ticket size winners and losers
|Federal State||% change||Federal State||% change|
|New Mexico||-1.4%||North Dakota||2.2%|
The data suggests that other factors could be contributing to the patchy sales data, but what it is is hard to tell.
As retailers adapt to changing consumer spending habits, there is a focus on inventory levels. Target, Walmart, and Amazon are among the big companies that have said they have too much inventory in stock.
Nikki Baird, vice president of strategy at retail technology company Aptos, said this shouldn’t have come as a surprise.
“What I’ve learned from all of this is that human psychology is still the biggest driver of the supply chain: a tendency to project the current situation into the future (i.e., when consumers spend a lot into the future) as the most basic way of predicting the future Improving invest their homes in the last two years, they will invest at this rate forever),” Baird said. “Has all the AI optimization that companies are said to have invested in missing out on behavior changes as consumers abandoned pandemic practices? Or have people ignored and overruled these predictions?”
As inflation took hold, that failure created additional problems for retailers, Baird noted.
“The whole ‘lifestyle shift’ that retailers have been reporting is really disappointing,” she said. “It was easy to predict that, for example, in a restaurant, when things reopen, less bread will be baked and more bread eaten. I realize it wasn’t exactly predictable when this shift would happen, but retailers seemed to have taken an approach that upended pandemic habits until they saw real evidence of behavior changing – and it is much too late for inventory management.”
With inflation at crippling highs and excess inventories of little concern to consumers, retailers are now in a bind.
“You can’t stop a supply chain on a dime, as we’ve already learned during the pandemic,” Baird said. “Rather than hedging their bets by investing a little more in the things that consumers would be shifting their purchases to, [retailers] stayed tough on items that were hot during the pandemic and now have to deal with a stack of that inventory.
Jennifer Randall, senior director of marketing at technology company ToolsGroup, said retailers need to determine which forecasting system is the best model going forward.
“[Consumer packaged goods] Companies have long created 18-month forecasts so they can streamline their sourcing and manufacturing operations,” Randall said. “With a year-and-a-half timeframe, packaging and ingredients can be secured at an optimal price, shipping costs can be better negotiated, and promotions can be better planned and fine-tuned.”
With spending on consumer durables likely to decline during periods of inflation and a shift towards cheaper items taking place – as Commerce Signals data trends show – suppliers need to consider changing data trends.
“With inflation as a disruptive event, the question is which data should be used – older estimates prior to inflation, or a more recent estimate that might show slightly unusual consumer behavior due to inflation but better reflects the current on-shelf demand landscape?” said Randall.
The data clearly suggests a shift is underway – and it’s uneven across the country. Now the question arises: how to proceed?
“When things get more expensive, people run out of room in their budgets,” Mangiapane said.
Click here for more articles by Brian Straight.
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