Americans’ real incomes are stagnating or declining thanks to high inflation, yet consumers are still spending rapidly. The personal saving rate — the share of disposable income left over after spending — dropped to a rock-bottom 2.3% in October as consumer spending accelerated at a healthy clip. Stores are almost empty, and Christmas spending is stalled.
After the surge in 2021, only 7% say they are planning to spend more in 2022, according to an S&P survey.
According to the CNBC All-America Economic Survey, American shoppers plan to watch their wallets closely this holiday shopping season, with 41% saying they plan to spend less this year than last. It marks the most cautious holiday season since 2013.
A third of Americans say they will spend less because of inflation. Thirty percent of participants also say they will use a credit card or other debt to finance their gift purchases, up 8 points from last year. Nearly 40% cited the poor economy among the reasons they will reduce spending.
As Americans spend down their accumulated savings, their voracious appetite for goods and services will wane. Recent Fed research estimated that households accumulated roughly $2.3 trillion in savings through last summer. That stockpile started declining at the end of last year; as of the second quarter; it stood at $1.7 trillion.
In addition to waning savings, consumer debt is rising rapidly as more “pay later” options increase. Brands that raised prices to increase profit are going to lose customers. Some economists are saying that we are definitely headed into a recession.
As brands raised prices, I talked to some brokers and buyers and heard a reoccurring theme. Brands that raised prices are losing market share, and other lower-cost brands are stealing their share. As one buyer told me, “some brands were fooled by believing they had too much brand equity to lose share, but we’re seeing lower-cost brands take premium space on shelves.”
Too many brands got greedy and will be paying a price for that greed. Will they recognize the changes coming with consumer spending, or will they continue to think that customers can’t live without their brands?
Based on this data, what will brand marketers do? I’m hearing that more promotions are coming after the holidays, especially on bigger ticket items. That will eat into margins, and Wall Street won’t be happy, but their demand for higher profits was a primary cause of inflation.
I expect marketing to experience cuts from TV ads to online advertising (online ads are being cut dramatically). CMO turnover has been high, and I expect it to be higher as more are held accountable for lost market share and lower profits. In addition, now is not a good time to launch a new product like an $800 coffeemaker.
Too many marketers live in the now but fail to think about the future because now pays bigger bonuses, and there is a great chance they will gone anyway.