As inflation continues, consumers are getting worn out and spending less. If high-price fatigue continues through the spring, retail analysts see consumers tightening up the purse strings, which will put retail gross margins at risk for further erosion.
And even though the fourth quarter of 2022 GDP came in better than expected, Lindsey Mazza, global retail lead at Capgemini Group, said consumers are concerned about their financial situations. Here, Mazza discusses consumer spending trends and the impact of inflation as well as finding from the company’s recently published consumer survey.
WWD: How has consumer behavior changed in this post-pandemic period?
Related Galleries
Lindsey Mazza: We’re in a period of dramatic market disruption, including labor crisis, geopolitical conflicts, supply chain disruptions, energy transition and economic factors. At the same time, consumers want more. They have increased demands, including convenience, personalization, choice and, newly, immediacy. Consumers also feel the market disruption, and it’s causing them to react by spending less or spending the same but buying fewer items in their basket.
WWD: What are shoppers concerned about? And how does that impact their spending?
L.M.: According to Capgemini Research Institute’s latest “What Matters to Today’s Consumer” report, 61 percent of consumers are concerned about their financial situation and are reacting by reducing impulse purchases, reducing luxury spending and reducing non-discretionary spending, including household essentials and groceries. Sixty-five percent of consumers are reporting buying more private labels over name brands.
WWD: What do consumers expect from retailers and brands?
L.M.: While reducing spend or changing buying habits, consumers also report that fulfillment services are more important than ever. Forty-three percent of shoppers say that delivery and pick-up are the most important services or experiences a retailer can offer, and while consumers are more willing than ever to pay for delivery, they’re willing to pay less than 5 percent of the order total on average.
Consumers are also adjusting their intentional spending. Over half of the consumers value affordability over sustainability. It’s more important than ever for retailers to make sustainable choices affordable.
The reports show that the newest consumer expectation is carbon-neutral home delivery in under an hour, curbside delivery in under four minutes after check-in, combining items ordered ahead or on subscription for in-store pick-up with additions found browsing the aisles. Retailers will need to transform operations in order to meet the new consumer demands for affordable sustainability, convenience and low-cost, nearly immediate fulfillment.
WWD: What are some of the key challenges facing retailers and brands, and how will they resolve them in 2023?
L.M.: Retailers are facing margin erosion due to the squeeze from economic factors and consumer expectations, but this time of unprecedented disruption is also a time of unparalleled opportunity. Retailers should adapt to compete, unlock channel growth and lead with purpose.
Adapt to compete with operational improvements: In 2023, retailers and brands will drive cost reductions and margin improvement by rethinking how they operate, how the supply ecosystem is made intelligent, and how to engage shoppers throughout their “phygital” (both physical and digital) journey.
Unlock new channel growth: This year will be when retailers identify new revenue streams and growth opportunities through new initiatives and operating models. They’ll divert marketing spend to social channels; they’ll become media companies, creating an ecosystem from supplier to CPG to retail to consumer and back.
Lead with purpose: Retailers will manage the growing tension between the simultaneous need for affordability and sustainability, bringing balance to profit and purpose.