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Don’t waste another dime on bloated channel reporting and vanity metrics.
Don’t waste another dime on bloated channel reporting and vanity metrics.
It's one of those weeks when we'll learn a lot about the state of the US consumer economy.
Welcome to a new week. For many brands and retailers, it’s a slower time in earnings season and professional events are mostly on hold amid the busy holiday shopping season. But it’s a critical week for the economy that will say a lot about how we are finishing 2022, and prospects for 2023. Three areas that are of particular interest for the consumer economy are set to see new data released: Inflation, interest rates and retail sales (aka consumer demand). Here’s a look at what the past week’s data may tell us about what we're about to see this week, and the schedule:
All eyes are on inflation, the Fed’s efforts to bring it down and what those could mean for the overall growth trajectory of the economy. Heading into this week’s release of the Consumer Price Index for November, last week offered a mixed picture of inflation.
The Producer Price Index, which measures wholesale prices before they reach retail, rose 0.3% in November, equaling the monthly increases for September and October. This came in higher than expected, according to CNBC. So, it was taken by Wall Street as a potential sign that the cooling of inflation observed in October may not be as sticky as thought. However, the index’s annual increase continued to cool off to 7.4% – well below the March peak of 11.7%. That indicates there may still be room for a slowdown of the sort observed in last month’s CPI. Note that the Producer Price Index tends to be more forward looking, so the CPI and PPI is not an exact comparison.
The Digital Price Index from Adobe showed a big decline as it entered firmly into deflation with the steepest year-over-year drop in 31 months of 1.9%. While this was driven by holiday discounts in areas like electronics, toys and sporting goods, Adobe noted that cooling of prices and pet products could be an indicator of more slowing in the sorts of broader categories that apply widely across the economy in the Consumer Price Index.
Consumer sentiment ticked back up to start December, the University of Michigan reported. The 4% gain was enough to pull back decreases observed in November, but remains low by historical standards. “Throughout the survey, concerns over high prices—which remain high relative to just prior to this current inflationary episode—have eased modestly,” UMich Survey of Consumers Joanne Hsu reported. Year-ahead expectations for inflation, which are followed by the Federal Reserve, also fell from 4.9% to 4.6%, which is the lowest reading in 16 months.
Consumer Price Index: The widely-watched inflation rate for November came down to 7.7% in November, which was its first time below 8% in months. So the question will be whether that cooling can continue this month. Keep in mind that comparisons are starting to lap the period in 2021 when inflation began to rise, meaning we are beginning to view annual rates not from a low baseline, but from one of elevated inflation. A look at the two-year rate increase might tell a story of still-elevated inflation, as it did last month. (Dec. 13, 8:30 a.m.)
Fed rate decision: The Federal Reserve’s Open Markets Committee will deliver its latest verdict on whether and by how much to raise interest rates. Fed Chair Jerome Powell has already indicated that another rate hike is in the works, but the question here is whether the increase will be lower than the series of 0.75% jumps over the last four meetings. Powell has said the committee may be open to slowing the pace, but it will depend on data like this week’s Consumer Price Index. Whatever the number, look for Powell to continue discussing how long the central bank will have to keep hiking interest rates, which could bring a more sustained period of hikes to cool demand that can do just as much to slow the economy cumulatively as a high single meeting hike. (Dec. 14, 2 p.m.)
US retail sales: A snapshot of early holiday season results and consumer demand as a whole arrives when the US Commerce Department reports retail sales for November. This will include sales for the Black Friday-Cyber Monday period, so should provide some indication of how much lift these shopping days delivered this year. Two competing forces will be present: Continuing inflation that is driving prices of essentials up, and heavy discounting for holiday sales that are pushing prices of discretionary items down. But categories beyond core retail could continue to have an impact. Bank of America Research forecasts a decline of 0.9% in headline retail sales, driven by a decline in new auto purchases. (Dec. 15, 8:30 a.m.)
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.