I was surprised when I read that Dollar Tree stores are getting more business from top-income earners. But consumers are changing their spending habits in several ways in response to higher prices. While consumers still have money, they’re being more cautious about how they spend it.
So what changes are taking place in consumer spending?
- They’re trading down: This means buying less expensive versions of goods and services. For example, consumers might switch from name-brand to store-brand products or eat out less often and cook more meals at home.
- They’re Cutting back on discretionary spending: This means spending less on non-essential items, such as entertainment, travel, and clothing.
- They’re Saving more: Consumers are increasing their savings rates to prepare for future financial uncertainties.
- They Shop around: Consumers are becoming more price-conscious and comparing prices more carefully before purchasing.
- Higher use of coupons and discounts: Consumers use coupons and discounts to save money on purchases.
- Buying in bulk: Consumers are buying in bulk when possible to save money on individual items.
These changes in spending habits are likely to continue as long as inflation remains high. Businesses will need to adapt to these changes in order to stay competitive.
Here are some additional details about each of these changes:
- Trading down is a typical response to higher prices, as consumers look for ways to save money without sacrificing too much quality. For example, a consumer might switch from buying name-brand cereal to store-brand cereal or buy a less expensive car.
- Cutting back on discretionary spending is another common response to higher prices, as consumers focusey on essentials and cutting on spending mon back on non-essentials. For example, a consumer might cancel their gym membership or stop going out to eat as often.
- Saving more: This is a wise response to higher prices, as it helps consumers build up a financial cushion in future financial emergencies.
- Shopping around: This is a good way to find the best deals on products and services. Consumers should compare prices from different retailers before making a purchase.
- Using coupons and discounts is another way to save money on purchases. Consumers should be sure to look for coupons and deals before purchasing.
- Buying in bulk: This can save money on individual items, but ensuring they will be used before they go wrong is essential.
Most brands are now spending more on marketing, including promotions, to lure consumers back, but most are resistant and want prices more aligned with their wallets.