Consumer Demand Is Strong, But Shoppers Expect Bigger Discounts?

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With all the challenges retailers face this holiday season — inflation and inventory glut topping the list — here’s an anomaly I’ve never encountered. The CEO of a retail chain was sharing the other day that his company can’t find enough employees to keep some of its stores open during all their posted hours.

This is a major headache but, despite being short-staffed, this executive reported, “We still made our sales numbers.” And with the employee challenge, he said, “We will still make our numbers.”

Although it is only one anecdote in a sea of data points, this company’s experience seems to align with a couple key findings of a recent First Insight survey: Nearly 80% of shoppers polled said they would pay full price for something “if they really like it.” 

On the other hand, when it comes to promotions, 70% of respondents said they’re looking for minimum discounts of up to 30% before committing to a purchase.

That is a substantial increase over the results of a similar survey conducted two years ago, when inventories were lean, and consumers’ wallets were fat with federal stimulus payments.

Taken together, the data suggests that demand is strong, but shoppers are hedging their bets on the future, a competitive landscape that puts brand loyalty on its back heels. Consulting giant McKinsey & Co. recently reported that consumers are “starting to adopt more value-conscious shopping behavior.” 

McKinsey said its Consumer Pulse survey found that, “more US consumers reported switching brands and retailers in 2022 than at any time since the pandemic began, and most of them say they intend to keep switching, primarily to find lower prices.” About a third of consumers polled said they were switching to private-label products.

What’s giving consumers confidence at the same time as a growing chorus of doomsayers are predicting a recession next year and the Federal Reserve keeps ratcheting up interest rates? According to a recent CNN report, analysts at Wells Fargo observed,

“Monetary policy acts with a lag, but at this early stage, consumers’ spending is more or less unfazed by high inflation and the rate hikes intended to get prices under control.”

Major consumer products brands appear to be operating on the same assumption when it comes to pricing strategies. Reuters recently reported that companies like Hasbro and Colgate-Palmolive have been defending their margins by setting minimum prices on their goods.

"We're seeing categories adopt (these floors) that never had, like food and beverage," Jack Gale, an account executive at PriceSpider, told Reuters. Gale said that since 2018 PriceSpider has seen 120% year-over-year growth in the number of brands imposing such price floors.

All of this suggests retailers have more leverage with pricing than they realize.

A recent report on industry news site cited an Accenture survey of executives that found nearly all had increased their promotional activity as part of their holiday plans. The good news, maybe: aggressive discounting could drive revenue gains by enticing consumers to buy more, but they may not be necessary in some cases. Mixed signals for sure.


retailers  retail  discounts  promotional strategies  consumer spending  Holiday Shopping  Holiday Season

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