April 2022

What’s Rocking Retail Sales?

The end of stimulus, higher prices, and other factors are beginning to affect retail sales, even as employment and savings rates remain high

Throughout the course of the pandemic, spending by consumers in all income levels has been critical to retail performance. As the pandemic has worn on, higher-income consumers have played an even more significant role in the continuing growth of retail sales. This shift in spending was evident throughout most of 2021, as prices rose and spending among lower-income consumers was no longer shored up with stimulus checks.

“We can expect to see continued consumer retail spending pull-back in the coming months,” said Marshal Cohen, chief industry analyst for NPD. “There’s no way to maintain the elevated level of demand because there are just too many components tugging at consumers right now. The rising cost of living and other drags on spending, combined with demand that is waning from pandemic-highs mean the elevated level of consumption will increasingly become less tenable.”

Who’s Buying?

Households with an annual income of $100K+ accounting for a larger portion of total U.S. retail sales.

Source: The NPD Group/Checkout

Spending Per Buyer by Household Income

Source: The NPD Group/Checkout, January-February 2022.

Consumers at the upper end of the income spectrum are likely to continue the spending spree they have been on in the near term, as they may be less likely to feel the pinch of rising grocery and gas prices and other forces, keeping the high-end and upgrade-worthy products moving. But all the macroeconomic conditions at play will have a greater impact on lower-income consumers, so it’s also important for retailers and manufacturers to also sharpen the value side of their product offerings.

“U.S. consumers across the board have been able to increase their personal savings levels during the pandemic, and employment rates are high,” said Don Unser, chief retail strategist for NPD. “However, when we adjust for rapidly rising prices for gas and discretionary retail goods, spending power from savings and wages is falling rapidly. And that’s especially true for lower-income consumers.”

High-income consumers will still retain their willingness to spend, when there are products that drive them to do so. A varied approach when going to market, keeping in mind both income groups, will be vital to maintaining retail growth in the months ahead. “We will continue to monitor consumers’ response to evolving market conditions, while identifying the most significant developments in retail behavior as the pandemic mindset settles into what may be forever-altered lifestyles,” Cohen said. “It’s an inflection point that could have significant effects across the retail world.”

Retail Viewpoint: Canada

Tamara Szames

NPD has been tracking a dramatic shift in our early indicator data in Canada: from January through March 26, 2022, retail sales in Canada declined by 1%. “There’s an interesting teeter-totter effect going on,” said Tamara Szames, retail industry advisor for NPD in Canada. “Although consumers are pulling back on areas they overspent on in the past two years, we’re not seeing a fast enough shift in spending on other areas, like footwear and beauty, to make up for the pull-back in those categories.”

Products are becoming more expensive across the board and NPD is watching what might happen with pricing in next six to nine months. “While we have seen retailers and manufacturers become less promotional over the past couple of years,” Szames said, “if consumers pull back on spending, retailers might be forced to become more promotional, which could drive consumers to purchase again.”

By the Numbers: Price Perceptions in Canada

noticed price increases when shopping in the past three months 

say price increases have affected how they are shopping

will look for alternative products at the price they want to spend 

will only buy products on sale/promotion if prices continue to rise

Checking in with Checkout from NPD

Consumers spent $96.7 billion on accessories, apparel, appliances, automotive, footwear, and nine other categories, from January through February 2022, which is 3.5 percent higher than the same period last year. However, the increase was driven by buyers spending more due to rising prices, rather than purchasing more products.

Demographic groups that have higher than average spending per purchase

Consumers with household income $100k+ 

Consumers age 35-44

Core, high-spending consumer
groups

Consumers with household income $100k+

Households with children <18 present

5+ person households

Vertical Industries Respond to Shifts in Consumer Financial Stability

See how rising prices and other impacts on consumer financial security affects specific industry segments in the U.S. and Europe.

Maria Rugolo

Maria Rugolo
Director, Industry Analyst

Apparel prices in the U.S could start to decline in the third quarter this year. However, we don’t anticipate prices will fall to pre-pandemic levels. Of course, if the U.S. economy enters a recessionary phase, consumers will focus more intently on their spending versus saving.

As in general discretionary retail, the apparel industry can expect a bigger impact on spending by lower-income consumers, as stimulus payments end and as prices rise. That means manufacturers that play in value might be well served by downsizing to keep price consistent (e.g., selling underwear and socks in four-packs versus six-packs). 

Consumers will continue to purchase clothing, but those purchases will be more targeted this year. Currently, we are predicting sales to be down this year, compared to 2021, but they will still be at or higher than 2019 levels. 

Apparel

Source: The NPD Group/Future of Apparel, 2022.

Larissa Jensen

Larissa Jensen
Vice President, Industry Advisor, Beauty

According to Checkout data from NPD, more than 40% of the consumers whopurchase prestige beauty earn over $100,000 a year. This income demographic is also the only one that is growing its share of market spending in the total retail market, and it’s the least likely to be affected by economic pressure. 

From January 1 through March 26, 2022, the beauty industry is only one of three industries to show positive sales revenue performance. It’s also the only industry to exhibit positive unit-sales performance, with double-digit growth. This finding ties in many ways to the “treat mindset,” as beauty products are a way people indulge and treat themselves to a little luxury during difficult times. 

Kristens Headshot BW HiRes

Kristen Mclean
Executive Director, Industry Analyst

The absence of the March 2021 stimulus payments caused March dollar declines. Units remained below pre-pandemic levels. Looking ahead to the second quarter, outside of a possible sales bump from the Easter shift, the chaotic comparisons of recent weeks should moderate by May. In general, consumer spending will look very different in the coming months.

Will there be a recession? How will the state-of-play in China impact my Q4 supply-chain outlook? How will higher prices for things like food and gas impact my customers’ willingness to spend on other discretionary categories like books? These are all critical questions for publishers and retailers here in 2022. We will continue to watch the publishing market carefully and report what we find.

DavidPortaliatin

DAVID PORTALATIN
Senior Vice President, Industry Advisor

Consumers are spending more for food, whether from restaurants or grocery stores.  In March, consumers food spending increased about $1 billion just at restaurants (commercial foodservice) where we shelled out $50.5 billion dollars for foodservice sourced meals, snacks, and beverages. The governments consumer price index (CPI) numbers in March show grocery prices (up 8.5%) rising slightly faster than restaurant prices (up 6.9%).  

However, to understand the real effect of higher prices on consumers we need a little history. While prices may be up across the food spectrum right now, over the past several years restaurant prices rose much faster than grocery receipts. This difference meant it cost consumers more to source meals away from home versus at home. Over the past year, that gap has increased by 22%, with a typical eating-occasions away from home costing $8.27 more than the same foods and beverages sourced from a retail store. This shift puts more pressure on the restaurant industry because today’s already more home-centric consumer is simply responding by preparing more meals at home.

Today’s AFH Meal Costs 22% Higher vs Last Year

Source: The NPD Group/National Eating Trends®/CREST® and Bureau of l Economic Analysis

Paul Gagnon
Vice President, Industry Advisor, Consumer Technology

While it’s not clear that economic disruption and inflation have a strong correlation to TV demand, historically, TV sets are one of the consumer electronics product categories with strong price sensitivity. That’s why discounts during holiday periods like Black Friday are so successful at driving demand. 

In the two-years since the pandemic started, strong demand for TVs as consumer spent more time at home led to an acceleration in purchasing. However, in 2022, unit demand is down relative to 2021 and 2020, partially because of accelerated replacement of TVs earlier, but also because higher TV set prices have a negative impact on demand. 

Amid an environment of high prices for most products, challenging comparison periods a year ago, lack of government stimulus, and accelerated demand, TV demand will be lower for a period of time – likely through 2022 and into 2023. However, these negative factors will gradually wane, and consumer demand should restore to normal levels by 2024.

LION Mathilde

Mathilde Lion
Executive Director and Industry Analyst

Consumer confidence dropped by 10 points in March, following the start of the Ukraine war, reaching the same level seen during the first wave of COVID-19 in April of 2020. Inflation in Europe has also reached its highest level so far this century, and rising prices for fuel, energy, and food is affecting consumers purchasing power.

The challenges for the beauty industry are mainly linked to supply chain issues and price increases on some raw materials. Even so, the easing of pandemic restrictions across Europe favors makeup recovery trends – especially lip color, which continues to be an affordable luxury.