What’s driving consumer behavior and strategies to plan Q4 success

Consumer spending through the first half of the year was resilient overall, despite economic headwinds. As the summer winds down, consumer spending is beginning to slow. According to the National Retail Federation, year-over-year spending growth decelerated to 1.6% in the second quarter from 4.2% in the first quarter. Now, brands and retailers are bracing for a challenging holiday season.

What’s driving consumer behavior in 2023?

People are feeling increased pressure. They’re going to have a new demand for discounts as they prioritize needs over wants and make clear tradeoffs. It’s shaping up to be another round of The Great Trade Down. Here’s a closer look at what’s driving this shift in consumer behavior and purchasing decisions:

The COVID piggybank is empty

The surplus consumers enjoyed has been spent through and retailers are seeing the shift at the category level as non-essential spend declines and their inventory demands shift with consumers favoring mid-tier priced items. Brands are seeing less spend in clothing, home goods, and other non-essentials and shift towards experiences like travel, dining, and live entertainment.

Credit card debt is at a record high

Not only do people have less discretionary spend, but they also have more debt. And they’re struggling to make the monthly payments to keep debt down. US household credit card debt increased by $145BN YoY in Q1 to a record high. And the 90-day payment delinquency rate reached 4.57% in Q1 2023, up from 3.04% the year before.

Interest rates are at a 22-year high

The debt equation is getting harder for people to have work in their favor because interest rates continue to surge – as part of the overall strategy to combat inflation. This makes it very easy to fall behind and have a “snowball” effect of debt and fees that becomes harder to come back from.

Student loan payments resume

Finally, student loan payments are going to resume this October and the average American will have an additional monthly debt of $200-300 a month.

Retail strategies for Q3 and Q4 success

It may only be August, but eyes are already on how the upcoming holiday shopping season will pan out – and it’s shaping up to be a competitive, discount heavy one. Consumers are becoming more mindful of their budget and trading down, and brands now need to evolve their strategies and tactics. So, what can retailers do under changing conditions to capture their share of spend?

1. Play outside of your lane – To start, use the shift back to Great Trade-Down to capture customers you would usually not reach. People are more open to shifting brands and their spend in the current climate.
2. Optimize the retail holiday calendar – Retail events drive volume of shopper traffic and create new opportunities to get in front of engaged shoppers across digital sites and platforms. Maintain market share in the moments before and after retail events. Plan your strategy around the pulses and lean into site and platform specifics peaks.
3. Make the inventory mix work – Focus on pockets of inventory that differentiate you from your competitors. Understand the products and categories that will bring people in and build baskets.
4. Pivot to a retention strategy – Digital media costs continue to rise. When digital ads are inefficient, drive more with what you already have. To maximize both sales and profitability this holiday season, focus on growing the relationship and value of your existing customers.
5. Capture early holiday demand – If spend is finite and consumers are nervous, those that capture early will win.
6. Lean into cash back – Consumers are looking for value in this market, and Cash Back can change behavior in an efficient manner.

We’ll be watching how consumers and retailers respond as the season approaches. Check back for more insights and strategies for success as the story evolves!

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