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Jun 12, 2019

Feeling the Squeeze: Shoppers on a Tight Budget (Part 1)

06-12-19 Fin. Burden pt 1 blog header
Skyrocketing health insurance premiums. Student loan debt. Tax cuts that didn’t quite turn out as promised. Clearly, many consumers are stressed about their finances, and for good reason. But there are two things retailers and brands need to understand. First, that stress isn’t only tied to income; other factors are at play. Second, financial stress does affect how people shop, but probably not in the way one might think. The fact is, many retailers and brands base their strategies on incorrect assumptions about low-income shoppers and why people tighten their budgets. 

In Part 1 of this series about feeling the budget squeeze, we’ll debunk myths about low-income shoppers, explain what really affects shopping behavior, and discuss what could happen if the economy actually does go south as many market analysts have predicted.


Low-Income Does Not Equal Cash-Strapped

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Not quite.

There are about 50 million American households that fall into the low-income category. It’s important to monitor their shopping behavior and what drives their purchase decisions. However, not all low-income households act cash-strapped.

Low-income shoppers spend 18% less than the national average. But 41% of low-income shoppers live alone, which shows income isn’t the only driver of low spend. When you’re shopping for one, you’re going to spend less. In reality, low-income shoppers are no more likely to budget or feel uncomfortable with debt than the average shopper.

You Don’t Have to Be Low-Income to Feel Squeezed

According to Numerator psychographics data, 15% of US households identify as “overwhelmed with burdens financially.” These are not all low-income households. In fact, 27% of financially burdened households are high-income (earning $80,000+) and 18% actually make $100,000 or more.

When we account for demographic elements, we see how feeling financially burdened leads to a noticeable decrease in spending. Looking at the graph below, there’s a difference in household spending on household staples by financially burdened shoppers compared to the average household with the same income, urbanicity, and household size. For example, when a high-income rural household of two is financially burdened, they spend about 10% less than the average high-income rural household of two.

This data shows that the households with decreased spending on necessities come from all incomes and urbanicities, but tend to be smaller households of one to three people.

When we look at the data for discretionary items such as electronics and toys, we see an even larger disparity in spending for financially burdened shoppers. Interestingly, the shoppers whose spending decreases the most come from households on the higher end of the income spectrum. 

For example, when a high-income, urban single shopper is financially burdened, he or she spends 33% less than the average urban single shopper. In fact, four of the top five spending decreases come from people who live alone, while none of the top 10 come from low-income households.

The high-level takeaway here is that automatically attributing a spending decrease to a shopper’s income is an inaccurate and potentially costly assumption. A number of factors, including household size and the feeling of being financially burdened, are the more likely causes. 

How This Data Can Help You Prepare for an Economic Downturn

Based on Numerator psychographics data, an estimated 19 million US households said their finances last year were worse than the year before, while 7 million said their financial situation has gotten worse two years in a row. But how did these shoppers who were feeling the squeeze change their shopping behavior over time?

Beyond some of the more expected categories like electronics, our data shows that these shoppers trimmed their shopping lists in specific CPG categories. Beauty products were the first to go, but as time progressed and finances continued to worsen, other discretionary categories were chopped.

These shoppers also started to rely slightly more on private label CPG brands (15.8% in 2016 vs. 17.9% in 2018) as their financial situation worsened. Meanwhile, shopping trips shifted to mass (26.7% vs. 28.6%), dollar (7.6% vs. 8.2%) and online channels (2.4% vs. 3.0%) at about the same rate. Brands and retailers, especially in discretionary categories, should be formulating strategies to curb cutbacks in spending and trips in case of an economic downturn.

Stay tuned for our next post where we’ll discuss how brands and retailers can insulate themselves from an increasingly uncertain economic climate.

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