.webp)
Halfway through the year in which artificial intelligence is changing everything, evidence is mounting that consumers’ financial stress is about as bad as it was during the devastating 2008-2009 Great Recession.
Shoppers are now savvier than ever about the price and value of nearly everything.
In fact, so many forces are bearing down on retailers this coming holiday season that it’s hard to know where to begin the discussion. For example, AI is nipping at Walmart’s and Amazon’s heels in product discovery, merchandise comparison, and pricing. From the same smart phone consumers use to check if Walmart’s price for an item is more or less than Amazon's, a shopper can type this prompt into a popular AI platform like Perplexity: “I want to buy a pair of wireless ear buds. Find the best price for value.” What comes back is a concise, all-text, organized and detailed response that begins, ”For pure price‑for‑value right now….”
That paragraph is followed by bullet points for two or three specific branded products that, “Multiple independent reviews rank as the top ‘budget’ or ‘cheap’ wireless earbud pick.”
Back in the early 2020s, when there was an ocean of stimulus money sloshing around the economy, consumers could be wooed by popular brands for products that cost a bit more but came with a bit more cachet or bells and whistles. Today we live in a K-shaped economy where the bottom leg of the K is getting lower all the time.
A recent Harris Poll survey conducted for British newspaper The Guardian reported that 57% of respondents said the US economy is getting worse (an increase from 46% who said so in February) and that 95% of those polled believe the country is in an affordability crisis. The poll found that about half of those surveyed said managing their debt has become a challenge.
The staggering cost of housing in many markets has been widely reported, as well as the spiking cost of homeowner insurance and utilities. Less reporting has been done on the impact of rising health insurance premiums this year on the finances of close to 25 million households.
According to a report last fall by the health nonprofit KFF (formerly the Kaiser Family Foundation), households with annual incomes between $35,000 and $55,000 will be paying an extra $1,500 to almost $1,900 this year. That’s more than twice as much as US consumers spend on holiday gifts each year, based on statistics from the National Retail Federation.
There are no estimates of just how much money is being siphoned out of the consumer economy as a result, but the guesstimates are all at least in the tens of billions. Beyond the presumed dollar-for-dollar trade-off, the psychological effect on household budgets can only magnify the impact on discretionary spending.
If the economy was booming, or even just healthy, these figures might not be so alarming. Instead, consumers were already under water before these rising essential costs. According to the New York Fed, as reported recently in The Wall Street Journal, the share of credit-card accounts that were more than 90 days delinquent in the first quarter was flirting with the peak reached during the 2008 financial crisis.
As we have reported here previously, consumers have been trading down for the past year or two, allowing retailers like Walmart to steal share from grocers as well as apparel and home goods merchants. The next phase, according to Swiss-based market research firm Icertias, is, “The New Consumer Demand: Prove the Value.” The company’s provocative take on consumer behavior: “Consumers are no longer asking only whether something is cheap enough, discounted enough, or good value enough. Increasingly, they are asking a more defensive and revealing question: “How do I know you are not treating me like a fool?”
The value-for-money calculation is no longer enough.
Retailers will have to work hard to figure out how to answer the dominant question on shoppers' minds: “Is this worth the price?”
Subscription required.
