business news in context, analysis with attitude

Three stories this morning about the impact of the inflationary economy on shoppers' purchase behavior…

•  The Wall Street Journal reports that as more and more Americans look to lower the costs of essentials, "one way they are doing so is by relying more on dollar and discount stores for groceries. Average spending on grocery products at discount chains increased 71% from October 2021 to June 2022, according to analytics firm InMarket. Over that time period, spending on the same items in grocery stores decreased by 5%."

The story notes that "roughly 2,300 Dollar Generals across the country currently stock fresh produce, out of more than 18,000 total locations, according to a Dollar General spokeswoman. 'While Dollar General isn’t a full-service grocer, we consider ourselves today’s general store by providing nearby and affordable access to daily household essentials, including the components of a nutritious meal,' she says. The company plans to expand fresh produce to a total of more than 10,000 stores in the next several years."

In addition, "A spokeswoman for Dollar Tree, which owns Family Dollar, says the chain aims to complement, not replace, grocery stores. She adds that most of the 16,162 stores offer frozen fruits and vegetables, along with sugar-free options, fruit juices, nuts, beans, whole wheat products, eggs and milk.

"Other households are buying in bulk or making do without items they never used to think twice about spending money on. Sam’s Club membership income was up 10.5% year-over-year, according to parent company Walmart’s May earnings call."

•  The Wall Street Journal also has a story about the mixed signals being sent by con sumner behavior, which create some of the confusion about the likelihood of a recession.

 An excerpt:

"The past week revealed new evidence from companies and the government that household spending is increasingly strained. Families are paring back purchases of items such as electronics and furniture as prices for essentials like food and gasoline have become more expensive. Inflation drove consumer spending in June to a new four-decade high while personal incomes fell when adjusting for inflation and taxes … Changes in spending habits, so far, have been uneven, companies and economists say. Many people are dining out and traveling more after missing chances to do it earlier in the pandemic. Pent-up demand is also fueling sales for automobiles. And some people- especially higher income households - are continuing to shell out for desired items regardless of elevated prices.

"Consumer confidence, however, has softened. After raising interest rates for the fourth time this year to battle inflation, Federal Reserve Chairman Jerome Powell said Wednesday that people are going to the grocery store and finding that their budget no longer covers their usual shopping list. On Thursday, the government said that the nation’s gross domestic product contracted for a second consecutive quarter, raising fears that inflation and a slowdown in inventory building and the housing market are dragging the economy into a recession."

•  The New York Times has a piece about how this is a terrific time to be a liquidation warehouse, which collect surplus and returned items from major retailers and then resell the products at steep discounts.

The volume that they are doing at this moment in time, the Times writes, opens "a window into a reckoning across the retail industry and the broader economy: After a two-year binge of consumer spending — fueled by government checks and the ease of e-commerce — a nasty hangover is taking hold.

"With consumers cutting down on discretionary purchases because of high inflation, retailers are now stuck with more inventory than they need. While overall spending rebounded last month, some major retailers say shoppers are buying less clothing, gardening equipment and electronics and focusing instead on basics like food and gas.

"Adding to that glut are all the things people bought during the pandemic — often online — and then returned. In 2021, shoppers returned an average of 16.6 percent of their purchases, up from 10.6 percent in 2020 and more than double the rate in 2019, according to an analysis by the National Retail Federation, a trade group, and Appriss Retail, a software and analytics firm … It’s becoming clear that retailers badly misjudged supply and demand. Part of their miscalculation was caused by supply chain delays, which prompted companies to secure products far in advance. Then, there is the natural cycle of booms — whether because of optimism or greed, companies rarely pull back before it’s too late."

KC's View:

There is going to be a lot of economic whiplash in coming months, I think, as retailers wrestle with a huge range of problems, many of them related to the uneasy state of the economy.

This is where senior executives, leaders and managers are going to have to step up and face tests they may not have dealt with before.  But in my opinion, the one thing they have to do is avoid a "let's get back to basics/fundamentals" mentality.  First of all, that would suggest that they weren't very good at it fundamentals beforehand, which wouldn't be a good look.  And second, it would ignore the opportunity to use this moment to define even greater differential opportunities when compared to the competition.