Disappointing earnings reported by Home Depot suggest they are cutting back on home remodeling projects. A strong earnings report by Walmart this week suggests some consumers are “trading down” to save money.
A new Gallup Poll shows Americans are increasingly concerned about the economy. The survey found 55% of consumers described their financial situation as only "fair."
Stacy Elmore, co-founder of The Luxury Pergola, a home improvements company, is also seeing signs of consumer stress.
“What we are seeing is a massive retraction in consumer spending,” Elmore told ConsumerAffairs. “We are seeing a rise of ‘buy now, pay later’ options, and even places that focus on DIY where you ideally save money, like Home Depot, are suffering. I think consumers are strapped for money in this economy and rising interest rates certainly aren't helping.”
Half-full glass
Natalie Kotlyar, national leader of BDO’s Retail and Consumer Products Practice, has a “the glass is half-full” perspective. She took comfort in April’s retail sales numbers.
“April’s retail sales numbers speak to the resiliency of the economy,” she told us. “Consumers are also prioritizing travel and experiences, like dining out. Although inflation remains high, there are positive signs it’s starting to ease which is good news for the consumer.”
But Nari Viswanathan, senior director of Product Segment Marketing - Supply Chain at Coupa, a spending efficiency platform, says consumers are still struggling with higher gasoline and food costs, though some prices have begun to fall in recent weeks.
“Although the supply chain is more resilient and dynamic after major disruptions over the past few years, suppliers are still struggling with shipping and delivery costs due to inflation,” Viswanathan said. “These increased supply chain costs from retailers are being passed on to consumers. And as a result, consumers are trading down to generic vs. brand-name products, affecting their spending habits. Consumers may also switch from organic to regular produce at the grocery store.”
Where to cut back
Viswanathan cites a previous Coupa study showing that 93% of retailers worried about a recession affecting consumer spending and that trend appears to be playing out. Consumers may be loyal to brands they favor, but prices and economic uncertainty have a higher influence on their purchasing decisions.
Where else can consumers struggling with inflation make changes? Elmore says this is the time to focus on basic needs.
“Most consumers are going to have to cut back on any discretionary spending they can,” she said. “This isn't the time for bathroom and kitchen remodels, but rather fixing anything that may be broken.”
But Elmore also sees a bifurcation in the economy. People who are well off, with plenty of disposable income, may continue to buy, while anyone below that line will be tightening their belt.