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At a time of economic swings, everyone watches for signs of how the causes are playing out on the ground, and when things might get better. Inevitably, this leads back to a close monitoring of the two forces shaping the economy: supply and demand.
That has been true in the shifts of the last two years.
In 2021, supply was in focus, as bottlenecks in the supply chain made goods tougher to get. Delayed shipments and out-of-stock notifications were the signs of this shock.
As inflation increased in the spring of 2022, demand took center stage. Consumer behavior is being closely watched for signs that spending habits are changing as prices go up. In fact, retailers are now dealing with too much inventory, which could perhaps be taken as a sign that demand has overtaken supply as the focal point. The issues are not so much making and acquiring goods as moving them.
The two appear to swing back and forth.
Determining what caused the period of 40-year-high inflation that the economy faces right now could help find a way out, so the question becomes, was it supply or demand?
It turns out that the answer is both, and supply played a larger role. That's according to a recently-published Economic Letter from Federal Reserve Bank of San Francisco Senior VP of Economic Research Adam Hale Shapiro.
The analysis shows that supply factors account for about half of the rise of current inflation levels, while demand accounts for about one-third of the run-up. The rest is attributable to “ambiguous factors,” Shapiro writes.
This balance is even more apparent when it comes to so-called “core inflation,” which factors out food and energy to focus on consumer goods. Shapiro found that supply and demand each contributed to about half of rising inflation across these categories.
(Graph via Federal Reserve Bank of San Francisco)
For those watching demand, the letter offers a reminder: supply issues remain an overriding concern in this economy. They’ve been with us since at least April 2021 and haven’t slowed since. Labor shortages, pandemic-related supply chain disruptions around the world that are only starting to heal and the war in Ukraine are all feeding inflation from this side.
As a result, supply-related issues are likely to play a major role in determining when inflation will start to ease. It also makes that timeline tough to predict right now.
“The large impact of supply factors implies that inflationary pressures will not completely subside until labor shortages, production constraints, and shipping delays are resolved,” Shapiro writes. “Although supply disruptions are widely expected to ease this year, this outcome is highly uncertain.”
To be sure, demand still has a big role and should be watched closely. Shapiro points out that categories like furniture, clothing, toys and cookware showed “extraordinarily frequent” demand-driven price changes during the last two years. Inventory and other demand-related issues are still a big concern to retailers and those selling consumer goods, especially as a swing back towards spending on services and experiences reshapes consumer behavior.
It's just that the supply side is an important predictor of where we’re heading. It is of particular concern for policymakers at the Federal Reserve. Shapiro points to recent remarks from Fed Chair Jerome Powell during an interview with NPR’s Marketplace:
“What [the Fed] can control is demand, we can’t really affect supply with our policies…so the question whether we can execute a soft landing or not, it may actually depend on factors that we don’t control,” Powell said.
In other words, the 30-year-high interest rate hikes that the Fed is implementing are designed to cool demand. But its available tools may not be addressing the determinant of whether the economy ends up in a recession.The Fed will continue to monitor supply and demand together, and share results at here.
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On average, customers spend $59 more than the value of their gift card, Fiserv found.
In retail, sales are often measured in goods, whether they are purchased for ourselves or someone else. There are plenty of strategies that brands and retailers use to increase those sales, whether it is marketing, loyalty programs or how that item is presented.
In most cases, these are two different parts of the equation for retailers: The product that is bought and the strategies that lead to the purchase.
That’s what makes the gift card unique.
It is an item you can buy, with a section in the store all its own. Eventually, it leads to the purchase of other goods, so the gift card is leads to a direct sale. Yet it’s also a means to build a retail brand and create incentives that both introduce customers to a store and keep them coming back.
That’s a key takeaway from the 20th Annual U.S. Prepaid Consumer Insights Study from fintech and payments company Fiserv.
At this point, the gift card feels like a staple of the shopping experience. But it is only about 30 years old. In 1994, Blockbuster Video pioneered the sale of cards for gifted purchases directly as a means to combat fraud in paper gift certificates. Since then, they’ve proven to have a multitude of uses that stretch beyond the holidays.
Starbucks and Amazon gift cards are commonly distributed as prizes at team-building events and as pick-me-ups by friends showing they care. In 2022, 60% of consumers said they received a gift card from an employer, according to the Fiserv report. That was a big increase from 32% in 2019. People appreciate the gesture. The survey found that 85% of employees think that gift cards from an employer make for appropriate incentives.
For people looking to show generosity, gift cards can also be a means to stretch dollars. At a time of high inflation, people are looking for deals with their discretionary purchases. Gift card promotions that offer discounts and bonuses are proving particularly popular, the study found. Two-thirds of consumers said promotions can influence them to purchase more, while more than half of consumers took advantage of such an offer in 2022.
Yet the more difficult consumer environment is also having an impact on overall gift card sales. In 2022, the growth of gift card purchases slowed.
“Overall, 56% of U.S. consumers purchased more gift cards in 2022 compared to 2021,” said Tom Niedbalski, VP of gift solutions at Fiserv. “This was a decline from the 73% of consumers who said they bought more gift cards in 2021 than they did in 2020.”
Inflation and less discretionary income were the driving factors for consumers who said they bought fewer gift cards during 2022, as 35% of consumers said inflation was the reason they were purchasing fewer cards.
It's important for brands and retailers to understand why consumers buy gift cards. But it's just as crucial to understand where they can fit in retail strategy. Beyond sales, gift cards can help drive repeat customers, and extend a brand. These tools are particularly valuable at a time when retailers are focused on profitability in a tougher consumer environment.
Fiserv explained four areas in which gift cards are of particular value for brands.The following is directly quoted from Niedbalski:
Improving cash flow and revenue. Gift cards not only drive in-store and online traffic, there is an associated “lift,” or overspend, when a gift card is converted into a sale. On average, customers spend $59 more than the value of their gift card.
Repeat customers. Retailers use gift cards to foster loyalty and customer engagement, ultimately leading to repeat customers. One way we see this play out is through promotions associated with gift card sales. For example: a consumer who buys a $100 gift card for the holidays will receive a $20 bonus card that can be used after January 1 – creating a pre-holiday sale and post-holiday transaction in the New Year.
Branded currency. A gift card places a merchant’s brand directly into the consumer’s wallet, increasing brand awareness and ensuring the merchant’s brand is with the consumer when they are looking to buy.
Year-round marketing. The gift card has grown beyond the traditional holiday season. From birthdays and graduations to anniversaries and babies, gift cards are becoming the most popular way to recognize milestones – giving retailers opportunities to run additional promotions throughout the year.