Sometimes, consumers have aspirational tendencies, falling into the “expression” category (credit: Dyana Wing So on Unsplash)
U.S. consumers are sending out mixed signals on their spending habits and financial self-assessments, according to an August survey by management consulting firm Kearney, with more than half saying they’re living check to check, even as retail sales rise, inflation is down and mall traffic is up.
On top of that, Kearney found, how consumers view their purchases is often at odds with the kinds of fixed categorizations endemic to the retail industry. For instance, what the industry calls “apparel,” consumers see simply as “shopping,” while “home décor” is more aligned with “relaxation.” The findings were part of KCI’s quarterly briefing, released in late August.
Katie Thomas, who leads the Kearney Consumer Institute, an internal think tank at the firm, said retailers and brands need to migrate to a place where their strategy is better aligned with consumer targets, psychographics and lifestyles.
“In the short term, it’s about considering broader needs rather than being laser-focused on the specific category,” Thomas said. “The recent success of Barbie is a great example. Mattel chose to move beyond the toy aisle and focus on the overall IP of Barbie. Lifestyle brands such as Patagonia and Lululemon are good at this as well.”
In another part of the survey, 44% of consumers indicated they felt more stable financially six months ago than they do today, yet 50% felt that things will get better going forward.
“It’s how they’re impacted by headlines and the news media,” Thomas said. “They’re bombarded with inflation, the savings rate is dwindling, credit card delinquency is up, interest rates are high. In a separate study, one in three consumers felt stressed about higher interest rates, even though they’re not immediately impacted through a car or home purchase.”
On the part about 50% seeing positive in the future, she said, consumers are striving to reconcile the headlines by reflecting on their own situation, and find they still feel optimistic.
In terms of consumer motivation, Kearney suggests brands consider where their products fall among four main purchase drivers:
- Essentials: items that are not easily eliminated from a budget, but where brand switching is frequent if the core attribute is not differentiated
- Value: there is less price sensitivity, but the product needs to “work hard” and deliver on quality
- Pleasure: potential for high-margin categories and impulse spending, but easiest for consumers to eliminate
- Expression: the strongest area of brand loyalty, but preferences can “change with the tides” and brands are prone to competition from copycats
“Businesses and brands are structured in a category-oriented fashion, not by reasons that consumers think of first,” Thomas said. “The category constructs are not completely fake, but broadly speaking consumers are not necessarily thinking of spend X on clothes and Y on a handbag. They want to go shopping and buy what appeals.”
Looking ahead to the holidays, Kearney is expecting healthy consumer spending, although without a percentage or dollar estimate. “People are impacted by the resumption of student loan payments, but given the timing in October it will take a few months for that to take hold,” Thomas said. “So people will put more on their credit cards. People love the holiday season, and they don’t hold back when there are the best deals of the year.”
In the macro picture, positives like wage growth nearing inflation levels are offset by layoffs and downsizing, like a recent 10% corporate staffing cut at Dick’s Sporting Goods in her native Pittsburgh. “We’ll see where things stand in the New Year, if credit card delinquencies go up,” she said.