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With inflation on the rise, many consumers are adjusting their spending behavior.
Food was among the main drivers of a 9.1% jump in the annual inflation rate last month, with “food at home” prices increasing 12.2% year-over-year.
A June report by Madison-based grocery tech startup Fetch Rewards paints a picture of how rising grocery prices are taking hold. While average grocery spend per household remains elevated over 2021 levels, shoppers are purchasing fewer items overall. In June, average units per household dropped 3.5% year-over-year, following a 6.7% decrease in May. But even as shoppers are cutting back on the amount of groceries they put into their cart, they still saw a 6.6% increase in spending per trip to the store last month.
The Fetch report also highlights a shift in shoppers’ purchase mix, as private label brands increased significantly for the first time in June by 12.4%.
“The long-term effects of brand loyalty remain to be seen,” according to the report. “However, a long-term flight to economy may turn into permanent purchasing patterns. Consumers may not return to branded products when purchasing power returns.”
In the way of discretionary spending, consumers in recent months have shifted from goods to services. The latest data from the Bureau of Labor Statistics shows an increase of $76.2 billion in monthly spending on services in May, offset by a decrease of $43.5 billion in monthly spending on goods.
Brian Spaid, chair of the Department of Marketing at Marquette University, attributes the trend to the continued return to pre-pandemic normalcy. As more people get comfortable leaving their homes, they’re no longer investing in new furniture to spruce up the living room but rather on dining out at restaurants or booking a vacation.
For Destination Kohler, which is the hospitality arm of Kohler Co., bookings at its resort hotels, restaurants, Kohler Waters Spa and golf courses are strong well into next year, a company spokesperson said.
As a result of shifting consumer preferences – on top of ongoing supply-side challenges – major retailers like Target and Kohl’s have adjusted their expectations for the second half of the year. In June, Target announced several updates to its 2022 operating plan, including revising its sales forecast for “discretionary categories like home, where trends have changed rapidly since the beginning of the year,” according to a news release.
Driven by “a softening in consumer spending,” Menomonee Falls-based Kohl’s Corp in early July said it now expects sales to be down high-single digits for the second quarter as compared to previously projected low-single digit decrease.
Of course, consumer spending will never move 100% to services, said Spaid, but for a lot of the goods people are purchasing these days, “value-conscious behavior” is driving the decision.
“Those sorts of behaviors where you’re switching brands, seeing if you can get more life out of what you have, that’s the sort of stuff that I think we’re going to see quite a bit of going forward,” he said.
Value consciousness is playing out across multiple sectors, from grocery – as indicated by the Fetch Rewards report – to fashion, which could help explain why Milwaukee Boot Co. has seen sales and average ticket size almost double in recent weeks. The brand and its affiliate Moral Code – both private labels produced by Milwaukee-based parent company Well Dressed Men Footwear and Accessories – are known for handcrafted, high-quality leather products.
It’s worth noting that the sale uptick at Milwaukee Boot Co. has followed the opening of a new retail space in the lobby of Milwaukee’s Iron Horse Hotel, where foot traffic is heavier than the brand’s previous storefront. But chief executive officer Mark Kohlenberg sees larger factors at play.
“For years, Americans have been buying disposable fashion. … Ultimately, from a sustainability factor, it’s the worst thing you can do,” said Kohlenberg. “Generally, consumers are getting smarter. They’d rather have a handful of legacy products in their closet that can last years instead of months, and they’re willing to spend a little bit more to invest in them.”
A pair of Milwaukee Boot Co. leather boots range from $150 to $200 – hardly “Gucci-level prices,” as Kohlenberg points out.
“All of our brands are still very value-focused and attainable, but I think our position in the market – particularly since we own our own factories, we’re vertically integrated – has provided us a really strong advantage in the current situation, both with inflation and supply chain issues,” he said.
Speaking to BizTimes Milwaukee in January for an economic forecast story, Kohlenberg predicted a retail markup of $5 to $10 on his products if supply chain disruption and shipping costs did not improve soon. Sure enough, a “modest price increase” went into effect several weeks ago.
“Honestly, it was mainly to cover increased freight costs,” he said. “That’s something that is out of our control and something that’s been dramatically affecting margins over the past six to 12 months, and we really didn’t have a choice.”