Consumer confidence peaked in the second quarter, but shoppers are now stowing away more in savings instead of spending more. That’s according to a report by market research firm IRI. One of the categories seeing less spending is nonedible consumables.
There are several components impacting sales in the nonfood sector. Unlike food, some items in the category are nondiscretionary in nature, and sales can wane when consumer spending dips.
IRI reports the biggest impacts on nonfood sales include fear of recession spending despite resilient consumer confidence through the second half of this year.
“Given the strong GDP, record unemployment and even steady inflation, consumers are feeling very confident,” said Joan Driggs, vice president at IRI and author of the report. “However, when we look at consumer behavior, it’s as if they’re waiting for a shoe to drop. They are saving more and curbing spending on nonedible products, such as beauty and personal care.”
The U.S. Commerce Department reported an uptick in consumer confidence in the second quarter despite trade and tariff tensions that dominated the news. IRI reports its Consumer Connect Index rose to 100.7 in the quarter. That reading was up from 97.9 in the first quarter of the year and 2 points higher than in the same period last year. The IRI survey found 42% of consumers are saving more money than they did a year ago.
IRI reports nonedible spending slowed after April with concern the U.S. could sink into another recession by early 2020.
The Baby Boomer generation led the downward spending trend, which began late in the second quarter. Millennial spending has been volatile over the past year but has trended lower since May. Seniors spending began to taper in March and has been the lowest of all the generations this entire year. Generation X consumer spending on nonedible consumables has been steadier in recent quarters with a slight downward taper since May.
Looking specifically at category spending in the second quarter, IRI found beauty sales, a category that has been strong in previous years, is down significantly. Monthly dollar sales were up 2% in April, down 0.8% in May and up 0.5% in June. A year ago this category had a monthly sales increase of 3% on average for the three-month period.
Tobacco is another category in distress. IRI reported monthly sales fell 1.4% in May and recovered to end June down 0.8% compared with the prior year.
IRI found three categories where nonfood consumables have fared better. General merchandise sales were up 4% in April, up 2.5% in May and up 2.1% in June. The sales were higher than the year-ago period throughout the quarter.
The same was true for healthcare product spending. In April healthcare product spending rose 4.8%, more than double the 2.1% increase a year ago. In May, sales rose 2.6%, better than the 1.9% reported a year ago. The June sales were up 2.9%, compared with a gain of 2.7% year over year.
The home care category also showed resilience through the second quarter with sales rising 2.1% in April, 1.7% in May and 1.6% in June.
While the sales in this category have been softer than a year ago, they have remained positive and better than the corresponding months in 2017.
IRI found national brands are out-performing private brands, despite consumers cutting back on spending. The report found nonedible spending on national brands averaged about $19 per shopping trip in the second quarter. This compared with an average of $9.75 per shopping trip for private brands.
IRI found 80% of consumers seek private brand options to save money, down from 84% in the year-ago period. The report also found 55% said they download coupons and use them on purchases, up from 52% a year ago.
However, the report found that 25% of consumers are willing to pay a premium for sustainable packaging that is better for the environment. Just one in 10 said they are willing to pay a premium for online delivery and pickup in-store, and 14% are willing to pay a premium for online orders that are delivered to their homes.
While Millennials are the generation most willing to pay a premium, sustainability attributes resonate with shoppers across all household income groups. Millennials also seek products made with natural ingredients and are the most likely to report avoiding products with ingredients they don’t want, according to the report.
“We anticipate that shoppers will gravitate toward premium private brand beauty and personal care products, such as those available at Ulta and Sephora,” Driggs said. “Thirty percent of shoppers expect to purchase more premium brands in the coming months, but private label options remain the top strategy for saving money. It’s these specialty retailers, which also offer elevated levels of service, that are best positioned to offer shoppers premium private brand options.”
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