2020 and 2021 saw a whirlwind of changes in retail spending habits amongst shoppers. In 2020, consumers took time to adapt to the changes brought about by the pandemic, slowing down retail growth to only 3% that year. But as the dust settled, the retail market jumped almost 18% to $6.58 trillion dollars in 2021. Based on data from Statista, these sales figures are expected to slow down to $7 trillion dollars in 2022 and $7.18 trillion dollars in 2023 owing to the economic upheaval globally. There are a number of factors that could have contributed to this slowdown, like the Covid-19 pandemic, high inflation, the Ukraine-Russia war, etc.
However, with the changes that the pandemic brought on within the consumers’ retail habits, it may be difficult to gauge how consumers will react to this slowdown. So, we at Intelligence Node, have run a consumer survey to better understand and help retailers understand the spending habits of consumers during an inflation-riddled 2023.
The Current Retail Scenario
The current scenario in retail, from a consumer’s perspective, does not look great for a variety of reasons:
- High prices of products in the market
- Massive tech layoffs leading to a time of uncertainty with respect to household incomes
- The U.S. Federal Reserve increasing rates to cool off spending and inflation
This is also backed by the fact that retail sales in the month of December 2022 fell by 1.1% in the US, which was the sharpest fall in the entirety of the previous year.
There is further evidence to suggest that consumers are reducing their spending, as observed in the Intelligence Node’s Consumer Buying Behavior Survey for 2023:
Q. When shopping in-store, how often do you search for similar products online and compare?
From the above chart, it is clear that over 95% of consumers check and compare prices of similar products online whilst in-store. It is also seen that over 50% of consumers tend to check for online prices very often or even every time they shop in stores.
This shows us the importance the consumer places on competitive prices across channels and how price sensitivity is increasing among consumers.
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Q. Select all factors that may push you to abandon your cart.
Here is another chart that shows how sensitive consumers are today. It is clear to see that the biggest factors that can push a consumer to abandon their eCommerce carts are hidden fees or delivery charges, both of which affect their overall cost for the product. Consumers are now choosing to prioritize a lower cost over convenience.
Q. How important are discounts while making a purchase decision across the below categories? (Rate from 1-10 : 1 being the least important and 10 being the most important)
And finally, we see how important discounts are for consumers in various categories. On a scale of 1-10, consumers have rated the categories they consider most important for prominent discounts. There is not a single category below the rating of 6.
Food & grocery, consumer electronics, and fashion & apparel are the top three categories where consumers value discounts the most.
The charts above show a sharp increase in price and discount sensitivity for the near term. But with the threat of inflation and a looming recession over their heads, consumers may choose to make further changes in their purchasing behavior.
How Inflation will Affect Consumer Behavior
We map out the current scenario for consumers with inflation-based behavioral responses received from the consumers in our survey:
Q. When shopping in-store, how often do you search for similar products online and compare?
From the above chart, we can see that despite there being people willing to spend more in 2023, they will have the most price sensitivity as opposed to consumers who would spend the same, or even reduce.
The above chart shows us that even the people that plan to spend more in 2023 will be very sensitive to price moves, more so than people who will spend the same or even reduce their spends.
Even the consumers that would spend the same, or even reduce their spending, agree that they will check online prices of similar products, either sometimes or very often. This lends credence to the fact that pricing will likely become the strongest factor for consumer buying decisions.
Q. When shopping in-store, how often do you search for similar products online and compare?
The above chart shows how consumers are likely to cut costs most in luxury goods, fashion & apparel, and home decor & furniture. We also see people would check online prices very often in those categories as compared to others.
Conclusion: Responding to Price Sensitivity With Competitive Pricing
In conclusion, the market looks like it will get much worse before it gets better. This will strongly affect the buying behavior of consumers and retailers will have to adapt to this changing environment quickly or risk losing out on customers.
Price is now the de facto king for consumers. If they find an overall cheaper variant of a product, they will be likely to sacrifice factors like ‘convenience’ for the same. Brands and retailers should invest in advanced, real-time pricing solutions like Intelligence Node to offer competitive prices that resonate with shoppers without compromising on margins. Discounts and the reduction of shipping charges will help several retailers too.
Fashion & apparel retailers may have the toughest time as compared to the other categories. But they also can attract plenty of customers if they price their products the same offline as they do online, and they give out strong discounts on their products.
2023 will be a tricky year for all retailers, and navigating through these uncertain times will require plenty of agility, on-ground knowledge of consumer behavior, advanced technology, and flexibility.
