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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.
Meanwhile, consumer sentiment reached a record low.
After one month where it appeared inflation might be cooling, the increase in consumer prices across the US economy reached a new 40-year-high in May. This came at a time when consumer sentiment is hitting all-time lows. Meanwhile, online inflation showed signs of cooling, but ecommerce is still feeling the effects of wider economic forces.
Here’s a look at the latest consumer-focused economic data:
Price spikes in the US economy set a new record in May. The US Bureau of Labor Statistics released the following data about increases in the Consumer Price Index (CPI) for the month on Friday:
Taken together, the report indicates that inflation’s march upward continues. This is happening even as the supply chain bottlenecks of the last year that were among the most prominent root causes of inflation are beginning to ease. And it follows the Federal Reserve making moves to hike interest rates by 75 points over the last month.
Following this news, the National Retail Federation urged the administration of President Joe Biden to move in another area that can affect prices: repealing tariffs on goods from China.
“Independent researchers and government agencies agree that ending tariffs is the fastest way to relieve the pressure of higher prices that American businesses, workers and consumers are facing every day,” NRF President and CEO Matthew Shay said, in a statement. “While the Federal Reserve continues with its long-term strategy to stem inflation, we need the administration and Congress to move forward on steps to lower prices that can be taken immediately. Repealing tariffs is one of those steps and one of the most effective and meaningful.”
When it came to online prices, however, there were signs that ecommerce is providing some shade as the heat continues to rise.
The Adobe Digital Price Index change over time. (Courtesy photo)
The Digital Price Index released this week by Adobe told a different story of online inflation for April, with rise in prices continuing the trend of slowing that began in April. Here are the key topline numbers:
A summary of digital price increases. (Courtesy photo)
Another closely-watched metric during this time of inflation is consumer spending. Purchase of goods surged over the last two years, which made supply chain bottlenecks more acute. Even with prices rising over the last several months, spending has remained strong.
According to Adobe, online spending continued to rise in May. Its data shows consumers spent $78.8 billion online for the month, topping April’s total by $1 billion for 7.1% year-over-year growth. That rise outpaces April, which had 4.5% year-over-year growth.
Online inflation tends to be lower than the measure for the wider economy, but they can mirror each other. This month shows the trend lines moving in opposite directions, as the CPI ticked back up, while the DPI cooled off.
It could be interpreted as a sign for consumers that even as prices tick up in stores, ecommerce might be a place they could seek out lower prices. There may be some relief there if prices are start to come down, and opportunities for ecommerce platforms and brands to attract shoppers. After all, price is one area where ecommerce has long sought to provide an attractive alternative to in-person shopping.
But it's worth noting that what’s happening in the wider picture influences ecommerce, too. Alongside rising inflation, there are reports of slowing ecommerce spending as big platforms like Amazon, Walmart and Shopify reported losses. Executives attributed this to a return to in-person shopping and a shift toward spending on essential goods at a time of rising prices.
Also on Friday, the University of Michigan Survey of Consumers reported that preliminary data for June showed consumer sentiment at its lowest recorded value. It declined 14% and reached lows that aligned with the 1980s recession. Of those surveyed, 46% of consumers attributed their negative views to inflation. They are seeing gas prices go up. They still see supply shortages. They are beginning to make choices as a result. No matter where they are shopping, this plays a role.
“Despite the modest increase in consumer spending online, an uncertain economic climate and rising costs in core areas like groceries are putting a hamper on overall demand,” said Patrick Brown, VP of growth marketing and insights, Adobe, in a statement. “Slower consumer spending on discretionary items has driven slower, single digit ecommerce growth since March, and this pullback mirrors the easing in online inflation.”
Yet it is all setting up a summer in which price will matter. For one, rising inflation will mean consumers seek out lower prices.
They may have plenty to choose from.
Big box stores and other major retailers are flush with inventory that is only arriving now as a result of supply chain backups. But consumer spending shifted from the popular casual wear, big-ticket items and home goods of the pandemic restriction period to cosmetics, dressier clothes and luggage that’s needed to head to the office, social events and vacation. Retailers are getting set to introduce discounts as a result. Target made their plans along these lines plain this week, and others are expected to follow. Prime Day is around the corner, as well, putting deals in focus for a week (or more) in July. Private-label brands are emerging as an option.
Month-to-month data helps to fill in the picture rather than paint the full scene. Inflation is still an economic force shaping the economy now, just like it was at this time last month. The latest figures are a sign that it's not going anywhere soon. Balancing rising costs and attentiveness to price could be key for brands and retailers seeking to navigate it. Plan accordingly.
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.