Despite a global pandemic and record inflation, consumers have defied expectations and continued to spend. At NRF 2023: Retail’s Big Show, NRF’s head of research Mark Mathews and Jonathan Silver, CEO and founder of Affinity Solutions, discussed the forces that are propelling consumers to spend.
The conversation, moderated by Katherine Cullen, NRF senior director of industry and consumer insights, also outlined what it might mean for the next 12 months as uncertainty about the economy increases.
NRF uses a variety of sources to understand the mindset of today’s shopper, including surveys, focus groups and government data. Affinity data contains actual transactional data from over 100 million debit and credit cards across the United States and can be dissected and analyzed by income, geography and generation.
Consumers were cushioned from the full impact of inflation in 2022
The $10 trillion government stimulus played a large role in consumer behavior, creating a massive savings war chest that fueled consumer spending even as inflation rose throughout 2022. “We saw the savings rate spike during the pandemic to almost 34%. That’s unheard of,” Mathews said.
“But rather than cutting back on things, the consumer chose to continue to spend. They haven’t cut back on retail. They spent on services, and they spent on retail … so in the last 18 months, we’ve seen them spend over a trillion dollars of those excess savings to expand the wallet.”
That cushion helped sustain discretionary spending
Silver pointed out that retail accounted for almost 70% of the total customer wallet in 2019. “And then, as you would expect, it spiked to 78% in 2020 due to restrictions and lockdowns,” he said.
“In 2021 it was 74%, and now in 2022, it has returned to pre-pandemic levels, around 70%. What’s interesting is the entire pie, or size of the consumer wallet, grew by close to 20% between 2019 and 2022.”
Affinity’s data showed that consumers didn’t curtail discretionary spending as prices for everyday items increased. Instead, they drew on savings and other sources of income to continue spending at the same rate on both essential and nonessential goods.
"There’s still a trillion dollars left of excess savings but we’re burning through that at a high rate."
Mark Mathews, VP, research development and industry analysis, NRF
2023 won’t be a repeat of 2022
As both Mathews and Silver discussed, the future is murky. “There’s still a trillion dollars left of excess savings but we’re burning through that at a high rate, “ Mathews said. “We are going to get to a point in 2023 where, if inflation remains high, you are potentially going to see consumers running into a wall because they won’t be able to maintain that level of spending.”
But there are signs inflation is moderating, he noted, which could help buoy consumer spending as it resets to more sustainable levels.
Silver says he’s relatively bullish on the consumer for the first half of 2023 at least. “What retailers do is going to have a big impact on how the consumer behaves,” he said. Successful retailers will have to leverage data to better understand how to meet consumer demand.