While no two economic downturns are the same, all past recessions share similar markers, including a decline in consumer spending, real wages and employment. But key differences arise between recessions as well— from driving factors to consumer responses— meaning playbooks from past recessions may not fully guide businesses through responding to a modern recession.
Perception is Everything
Are we in a recession?
Regardless of whether the Fed has officially declared a recession, three-fourths of consumers believe we are already in one— 72% of shoppers think the US is currently in an economic recession as of late November. A similar number (73%) are uncomfortable taking money out of personal savings or retirement accounts and over half (59%) are uncomfortable spending money on non-essential products, services or travel. Brands and retailers shouldn’t await an “official” declaration of a recession to implement recessionary precautions & strategies, and should follow the cues of consumers, who are already enacting money-saving measures in their everyday lives.
Is consumer spending down?
Non-essential categories are showing a moderate decline in sales versus year-ago, with most consumer electronics and home improvement categories experiencing household penetration and buy rate decreases in 2022-to-date. Despite declines in these specific categories, overall spending remains stable or slightly up in many key channels like Club, Food, Mass and Online. High sales numbers are driven in large part by increased spend per trip, which is a direct result of rising prices. So although shoppers are spending more, they’re buying less, and brands & retailers will need to think about driving volume growth in the upcoming quarters as prices reach their limits.
Savings, Promotions & Sales
Where are shoppers looking for savings?
Aside from cutting back non-essential spending altogether, searching for coupons, promotions or sales is the top method consumers say they’re using to save money in light of rising prices. And coupon cutting isn’t limited to consumers strapped for cash— those with mid-to-high levels of financial security are couponing and stocking up on sale items, as well. Despite this consumer desire for cost-savings, as of this fall, overall promotional ad block volume has declined versus 2021.
Retailers and manufacturers will want to evaluate their promotional activity to ensure they’re catering to consumer needs. Those who fail to keep up with their competitors on a promotional front risk losing consumers to better deals, meaning it’s important to keep tabs on the promotional activity of their competitors, as well.
How has retail changed since The Great Recession?
The retail landscape has changed dramatically since The Great Recession ended over a decade ago. In the past five years alone, online CPG sales have grown over 350%, with 84% of US households now turning to eCommerce retailers to purchase grocery, health & beauty, household, pet and/or baby products, up from 62% in 2017. Other noteworthy retail shifts include the growth of value chains such as Aldi, which has more than doubled its retail footprint since 2008. For certain retailers, private label offerings have also grown notably, giving consumers additional low-cost options when looking for deals.
Today’s consumers have a multitude of choices regarding where they shop, and both brands and retailers must have a complete view of all channels to gain a true understanding of consumer shifting behaviors. From discount retailers to private label brands, shoppers have significantly more opportunities to shift and save their dollars than they did during past recessions, and tracking shifting behaviors has never been more important.
New Shoppers, New Perspectives
How does Gen Z feel about a recession?
Beyond new retailers and brands, there is a new generation of shoppers who have never experienced a recession while in charge of their own finances. Today’s adult Gen Z consumers (ages 18–27) were no more than 14 years old during The Great Recession, and while some may have memories of its impact on their families, few-to-none would’ve experienced an impact on their own personal finances.
These Gen Z consumers— along with younger Millennials— are likely to view a recession very differently than older generations who have lived through the financial consequences before. Currently, only a third (33%) of Gen Z consumers say they’re concerned about an economic recession, compared to over half of Gen X’ers (50%) and Boomers (53%). Economic concern for younger shoppers is centered around the housing market and job stability, compared to older generations who are worried about a recession, the stock market and retirement savings. Catering to consumers throughout a recession will require a nuanced view of life stage and lifestyle, taking into account many different demographic and psychographic factors.
Managing Through a Modern Recession
Although similar markers help identify recessions throughout history, the ways in which brands and retailers need to respond to a modern recession will differ. Changes in retail offerings, consumer expectations, and overall consumer makeup will result in a modern recession that is unique from those of the past.
Keeping tabs on consumer sentiment, closely monitoring competitive promotional activity, and maintaining a cross-channel view of shifting behaviors can help businesses keep up while the market is down. Reach out to your Numerator consultant to learn more about how we can help you navigate a modern recession, or contact our team via our website.