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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.
These metrics also provide a look at the health of the consumer.
Tough times can be very instructive.
Pandemic shortages gave way to supply chain shocks gave way to inflation. The fallout could be a broader slowdown in economic activity.
While the swings made the future difficult to predict, we've learned a lot about the economy – and how interconnected it is – along the way.
In 2023, the collision of a pullback in consumer activity with inflation has many bracing for a recession. But economists believe that we aren’t in such a period of economic downturn yet. That has brands and retailers watching for signs of what might happen next.
At the NRF Big Show, a session led by National Retail Federation Chief Economist Jack Kleinhenz, KPMG senior economist Kenneth Kim and Morgan Stanley Economist Sarah Wolfe ticked through some of the key indicators that are monitored to provide a snapshot of how the economy is doing. Below is a look at the top measures covered. They're reported regularly in good times and bad, and also provide a snapshot of the health of the consumer:
GDP, or gross domestic product, is a measure of overall economic activity in the U.S., across consumer spending and business activity. Released quarterly, this is a leading indicator of whether the economy is growing or contracting.
Unemployment and the monthly report on jobs added or lost by employers from the US Bureau of Labor Statistics is an important measure of how the economy is affecting people and their ability to earn a livelihood. It doubles as a primary indicator of consumer health. As Kleinhenz put it, if consumers feel secure in their job, they will feel better about buying goods.
JOLTS, or job openings and labor turnover survey, measures the number of jobs that employees are seeking to fill across the economy. A rising number of job openings indicates a tight labor market, which is seen as a sign of a strong job situation.
Employment Cost Index is a measure of the change in labor costs, including wages and benefits. Measured on a quarterly basis, this tracks whether compensation for employees is getting higher.
Inflation measures price increases. Reported on a monthly basis, inflation has been closely watched over the last year as it rose to 40-year-highs following supply chain chaos and disruption from the war in Ukraine, among other factors. Inflation is available in two measures: The Consumer Price Index and the Personal Consumption Expenditures Index. CPI is typically the headline inflation number watched by businesses, while PCE offers a complete picture that is followed by economists and policymakers, including the Federal Reserve. For a breakdown of the difference, see this St. Louis Fed piece. While the CPI tracks the price of goods, additional key areas to watch for overall economic health are services inflation and shelter inflation, which measures areas including rent.
Wholesale inflation, measured by the Producer Price Index, measures the price of goods purchased upstream from manufacturers at the phase before they reach retail. This is considered a forward-looking measure of inflation.
Personal consumption expenditures (PCE) is a report issued monthly that includes a number of consumer metrics. Along with price, it includes overall consumer spending, disposable income and savings.
Consumer credit measures the amount owed by consumers across the economy. If consumer credit is high, it is a sign that people have less disposable income, and are looking to defer payments.
Federal Reserve interest rate is a benchmark interest rate set by the U.S. Central Bank that determines the cost of borrowing throughout the economy. This has wide-reaching effects, including on mortgage rates and other loans. In a bid to bring down inflation, the Fed is currently raising interest rates aggressively following a period of multiple years when they were at or near zero. This is designed to cool demand in the economy, so it runs the risk of slowing down activity.
Consumer Confidence Index is the Conference Board’s measure of attitudes, spending plans, and expectations for inflation, stock prices, and interest rates. Released monthly, this is an indicator of consumer willingness to buy.
Consumer Sentiment Index, as measured by the University of Michigan, measures the future plans for people, including whether they will save or spend. This is done through buying conditions and inflation expectations for given periods ahead into the future.
Inverted yield curve describes when short-term interest rates on US treasury bonds are higher than long-term interest rates. This is closely watched by investors on Wall Street as an indicator of a future recession, as it has appeared about one year before nearly all recessions since 1960.
Annual Survey of Manufacturers (ASM) is a U.S. Census Bureau report that provides estimates for all manufacturers in the nation. It can be an overall indicator of economic activity.
U.S. retail sales measure the overall sales made by retail establishments. Reported monthly, this is a wide-ranging measure that reaches across gas stations, auto dealers, department stores and category-specific stores. It provides an overall picture of demand in the economy.
PMI (Purchasing Managers Index) measures activity among manufacturers. Measured monthly, 50 is the magic number of this index. If it is above 50, that signals expansion in the manufacturing sector, which is a sign of economic activity humming.
Pay attention to the surveys. This is a lot of hard data to track. But remember to keep in touch with what people are saying. In a speech last week, Philly Fed President Patrick Parker spoke to the value of “soft data” from surveys and consumer conversations.
“But as a policymaker, I’ve come to believe that soft data like survey results are perhaps equally important to getting a full understanding of our economic situation,” Parker said. “Candidly, an overemphasis on hard data can lead to policy errors; last year, hard data suggested to us that inflation would be “transitory,” whereas the soft data we were hearing from our contacts indicated that rising prices were proving more persistent than we may have expected. Which is to say, paying due attention to soft data is vitally important to effective policymaking.”
This is a lesson that can apply to retailers, as well. Talk to customers often. They tend to tell you what they want.
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.