Despite moderate economic growth, consumers increased their spending in July
By Jonathan Silver, CEO of Affinity Solutions
Despite a decline in overall consumer sentiment last month, shoppers remained resilient. As inflationary pressures eased and retailers offered attractive discounts, spending remained steady. After all, who doesn’t love a good deal?
According to the July 2024 CNBC/NRF Retail Monitor, powered by Affinity Solutions, seasonally adjusted total retail spending increased 0.92% year-over-year (YoY), a smaller increase than previous months, but signaling that consumers are still willing to spend despite some economic headwinds.
The slowdown is primarily impacting purchases of discretionary items. Consumers are still stocking up on essentials, but they’re increasingly opting for budget-friendly options like store or generic brands to stretch their dollars further.
When we look at consumer purchase insights by category, we get a clearer picture of consumers’ recent buying habits.
Testing the Durability of Durables
Durables continued their steady decline, as Furniture and Home Furnishings dropped 4.79% year-over-year and Electronics and Appliances dropped 1.97% year-over-year. This reflects how consumers are prioritizing essential spending on food and clothing, suggesting a continued cautious approach to durable goods purchases. However, with interest rates expected to drop in September, we could see the Furniture and Home Furnishings and Electronics and Appliances categories improve in the coming months.
Amid historically stormy weather in July, the Building and Garden supplies category saw an increase of 2.29% year-over-year and 1.41% month-over-month in July, as consumers stocked up on appliances like generators and boarding supplies. If the severe weather continues, home improvement stores can offer discounts or special financing plans to ensure shoppers are prepared. Getting the word out and promoting these sales and discounts will be key as savvy consumers continue to search for deals.
Building and Garden supplies purchases often precede Furniture and Home Furnishings purchases, so the increase in July for Building and Garden could be a precursor to increases in future spending for the Furniture and Home Furnishings category.
Summer Sales Shifting Share
The non-store retail category, which includes giants like Amazon and other pure ecommerce retailers, while showing slightly slower than usual growth, still registered a 18.45% increase year-over-year and 0.82% increase month-over-month growth compared to a 23.08% YoY increase and 1.78% MoM increase in June.
The slowing growth, even with Amazon holding their July Prime Day sale, suggests that competing events from stores like Walmart, Target, and Kohl’s, might have been able to successfully steal some share of online spend from Amazon. Looking ahead, we’ll likely see more of these shopping events compete with the next Amazon Prime Day in October. It will be interesting to see if and how emerging retailers like Temu and Shein enter the fray with more advertising and promotional events to capture consumer dollars.
The emergence of AI in the non-store retail category is another trend we’re closely watching. eBay recently introduced Shop the Look, a generative AI-powered tool that lets customers see what different items would look like together, and Explore, which recommends options based on a customer’s size, style and other attributes. How these features impact sales remains to be seen, but AI is here to stay, and retailers should be exploring opportunities to use the new tech to boost growth.
The combination of summer sales events and the approach of the back-to-school season was a win for the clothing category which continues to show steady growth, extending its 16-month streak of YoY growth. In July, the clothing category boasted a 5.27% year-over-year increase and 0.57% month-over-month increase.
Home is Where Dinner is Served
Grocery stores continue to win more dollars than restaurants, as prices in the grocery category have shown more stability. Restaurant prices rose 4.1% yearly in July per the Consumer Price Index, and consumers responded with a 2.29% year-over-year decline and a 0.15% month-over-month drop in spending at restaurants in July. Comparatively, grocery spending was up 0.47% year-over-year and 0.60% month-over-month.
Consumers are changing habits, looking for deals or simply eating out less as prices continue to climb. To win back consumers, restaurants can continue offering value deals on meals and other promotions like free meals for kids to bring back price-conscious customers. Grocers, meanwhile, should continue managing prices and offering discounts and coupons to maintain and capture share.
How Should Retailers Adjust Their Strategies?
Overall, the US inflation rate continues to ease, dropping below 3% for the first time since 2021. As a result, the Fed is likely to cut interest rates next month. However, amid the highest unemployment rate since October 2021 and the Presidential election, it’s not smooth sailing yet.
Retailers in categories that are declining should concentrate on capturing market share, using data-driven insights to target their media buys and marketing promotions focused on competitive conquesting and personalized customer journeys. To implement either strategy, retailers must have a clear picture of customer purchasing habits outside their own stores, websites and apps. This requires prioritizing acquiring the right data and tools to analyze the data.
With regard to pricing and promotion, retailers should continue to optimize pricing and targeted promotions to capture share from price-sensitive customers while maintaining margins.