The American consumer has always been about “more” — spending more to celebrate the good times and then sometimes spending even more to take the edge off the bad times.
Both of those scenarios have played out since the COVID-19 pandemic reset retail’s economic calculus.
The result is a consumer today who’s lacking in confidence, but still spending and now finding a lot more of everything is coming at them, both the good and the bad.
Comparing the U.S. consumer economy today with seven years ago — right before the pandemic started — the income side looks OK, taken on its own. Weekly earnings are up 34.2 percent and once taxes are taken out disposable personal income is up 15.8 percent, while the unemployment rate is still low at 4.2 percent.
But if consumers have a little more in their wallets right now, they’re also paying a lot more to fuel up on their way to work or to get a bite at the mall.
Gasoline prices are up 45.5 percent since 2019 and food is up 35.5 percent, while prices on all goods were up 30.3 percent. By comparison, fashion has not kept up that pace, with women’s apparel prices inching up just 4.3 percent although men’s apparel prices did jump 20.2 percent.
And Americans are also borrowing more than before the pandemic to keep up with their spending. There’s been a 26.1 percent increase in outstanding revolving consumer credit, which is mostly credit card debt, a category that’s seen delinquencies increase. Housing debt is up 41.3 percent. And interest payments to cover it all are up 77.1 percent.
Putting all this together and the result is slow, steady growth in spending.
Retail and food services sales rose 4.3 percent through May this year, leaving room for a percentage or two of growth over inflation.
But not everyone is taking part in that growth.
“The averages look good, but if you lift the hood and look at the different tranches of consumers, not everybody is doing as well,” said Gregory Daco, chief economist at EY-Parthenon.
“Individuals that are at the lower echelons of the income spectrum are facing more pressures from higher prices, from the cumulative inflation over the course of the past six years,” Daco said. “And they’re generally the ones that are most exposed to higher prices at the pump, higher prices at grocery stores and they’re also the ones that have — of late — not benefited from as strong wage growth.”
Where spending has been stronger, it’s being fed by more than just the consumer’s regular paycheck.
“Those that are higher up have a little bit more spending capacity, but it’s not necessarily based on income,” he said. “It’s based on wealth. It’s based on access to credit. It’s based on some dis savings — reduced savings.”
While that has helped fashion retailers plug along, it is a foundation that can be dicey to build on.
“If you look out over the next year, a key question that remains unanswered is how much resilience will we retain as we continue to be in this environment where there is ongoing income erosion and where spending capacity is under pressure?” Daco said.
Little wonder that the give and take of those economic realities, the war in Iran, the rise of AI and a host of other worries have shoppers on edge.
The Conference Board’s consumer confidence index inched up 0.6 points to 91.2 in June — down from 121.5 seven years ago — a time when confidence hit a nearly two-year low amid U.S. President Donald Trump’s first round of trade wars.
But those are the economic crosswinds retailers have to navigate — something merchants are doing with a varying degree of skill and resources.
While in the past the industry pushed for more, more, more, the best companies today are winning by being a little more selective, moving up the price scale to capture the shoppers who have a bigger piece of that disposable income pie.
“They’re being more thoughtful in who they’re going after and how they’re going after them,” said Marcie Merriman, cultural anthropologist, brand strategist and founder of Ethos Innovation, of the savviest retail players.
“I see them also investing more thoughtfully into the experience, into the employees, into the people that are on the front line with the customers,” Merriman said.
By way of example, she looked outside of fashion and to Starbucks.
“They slipped big time by becoming more of that commodity or transactional,” she said. “And as they’ve invested back more in the stores and the experience, they continue to lift up and do better.”
Likewise, the top names in American fashion today — from Ralph Lauren Corp. to Tapestry Inc.’s Coach brand — have spent the last several years focusing on giving consumers better experiences and more branding oomph along with some savvier technology on the back end of the business.
They have also been raising their average unit retail prices, playing off their marketing muscle and picking and choosing more categories and looks that will appeal to higher-end consumers.
It’s an approach that more brands are using, raising expectations across the industry.
“I don’t know how long they get away with it, but actually offering more premium product in addition to their basic [looks] can bring in the people who are on the higher end. But at the same time, that premium level makes the basic things that you’ve been selling look more high end.”
She pointed to Levi’s as an example.
Last week, Michelle Gass, chief executive officer of Levi Strauss Inc., touted the brand’s new higher-end offer to analysts on a quarterly conference call.
“Blue Tab continues to gain traction as the most premium expression of our brand,” Gass said. “Importantly, Blue Tab is introducing the Levi’s brand to a new consumer, and we are already seeing early share gains at the premium end of the category. While still in the early stages, we see significant runway ahead as we scale the business, unlocking a sizable premium segment that remains underpenetrated for Levi’s today.”
That, it seems, is the new way to play the market share game in fashion.
