Trading, smaller tips, and more
- Retailers were calling out the effects of inflation on their customers.
- Some have noticed a slight uptick in credit card spending and slow or late payments.
- Others see shoppers turning to cheaper items, forgoing luxuries, and under-tipping.
Inflation is catching up with consumers, and retailers are feeling the effects.
Gone is the era of an expensive pandemic on household goods, promises of huge tips for service workers, and bank accounts filled with stimulus dollars. In their place are consumer choices aimed at saving money amid rising inflation.
As retailers have reported their quarterly earnings results for the past several weeks, they highlight some of these shifts. Here’s how shoppers changed their habits as prices skyrocketed:
1. Shoppers trade for cheaper products or stores
Back in May, Walmart began noticing that its customers were avoiding brand name brands in favor of private Walmart brands.
“We’re seeing some shift, which will include shifting specifically from brands to private brands,” Walmart US CEO John Woerner said during the company’s first-quarter earnings call. “We see categories like deli, lunch meat, bacon, and dairy, where we see customers trading.”
This type of behaviour, known as low trading, only increased in the ensuing months, and not just on a product-by-product basis — shoppers are also turning to value-oriented stores to save money. Chipotle suddenly became a budget option for the wealthy, higher-income shoppers started visiting dollar stores, Molson Coors saw a surge in demand for cheaper beers like Keystone Light and Miller High Life, and McDonald’s customers started skipping combo meals.
2. They spend more on credit cards – and pay them back less
Mark Cohen, director of retail studies at Columbia Business School, told Insider that there is a well-known phenomenon when the economy contracts: “Credit card debt, late payments, and wages slow, non-payment becomes an emergency crisis.”
Cohen described a common situation where a household bill payer pays what he can and avoids what he can’t. Over time, they may stop paying entirely because other expenses remain high.
Macy’s is already seeing it happen: The company said during its August second-quarter earnings call that it’s seeing rising balances, “early signs” of credit delays and slower payment rates among credit card customers.
“When we look at the industry more broadly, we see that inflation is outpacing wage growth. This is not sustainable for the consumer,” said Chief Financial Officer Adrian Mitchell, noting that consumers are “under pressure” from higher gas and groceries prices. Invoices.
Low-income and younger shoppers seem to have a hard time sustaining their lifestyles right now and are turning to credit cards to bridge the gap — those groups saw their credit card balances increase 25% and 30%, respectively, in the last quarter, according to data from the company. VantageScore credit score.
3. They have slowed down spending on luxuries with higher tickets
While wealthy shoppers are largely insulated from the effects of inflation, middle and low income shoppers are not, and the first thing to do is buy luxury goods.
Pete Nordstrom, Nordstrom’s president, noted during the company’s second-quarter earnings call, that while the high-end luxury division is “very solid,” he’s noticed a slowdown in sales of lower-priced designer goods.
At Best Buy, inflation caused an “uneven sales environment” that sent consumer electronics sales down nearly 13% in the second quarter — and Target also reported seeing slowing demand for high-ticket goods, especially electronics.
4. They cut back on tips
For many consumers, higher costs mean less spare change. As a result, one cost that is falling by the wayside appears to be inversion.
Although tipping at restaurants has mostly remained unchanged, tipping when eating out or at point-of-sale (POS) situations such as coffee shops has been declining, CNBC reported.
“As everything got more expensive, we’ve seen a drop in tipping,” Irina Sirotkina, owner of Sweetly Bakery & Cafe in Washington, told CNBC.
According to Square data cited by the Wall Street Journal, the average tip amount at express service establishments fell from an average of 17.2% in March 2021 to 15.2% in February 2022.