The Supply Side: Impulse spending declines as Americans navigate economic challenges

Consumers have been the economic engine keeping the U.S. out of recession through the first half of 2023. However, separate research from OnePoll and Numerator found that Americans are spending less on impulse purchases than in recent years.

OnePoll found that 83% of U.S. adults have decreased the amount of impulse spending this year compared to just 14% in 2022 and 16% in 2021. The average person is spending $151 impulsively per month, down from $314 in 2022, $276 in 2021 and $183 in 2020, OnePoll said.

The most significant area of pullback has come in clothing, with 55% of consumers buying less than in the past two years. But it’s not just apparel. Households stressed from sustained inflation resulted in 50% making fewer impulse purchases in food and grocery. Four in 10 said they are spending less on household items, 32% on shoes and 23% said they have reduced the amount of takeout foods they order. Just 18% said they spend less on impulsive coffee indulgences.

OnePoll also found the respondents are making fewer impulse purchases each month this year, with an average of six times. That was down from 12 purchases per month last year and in 2021. Retailers from Apple to Walmart have said customers are making less discretionary purchases as more of their budgets are going for food, services and higher fuel costs.

OnePoll said 77% of respondents have been conscientious about their budget this year because of inflation and 39% said they spend more impulsively on necessities than luxuries. The more conservative mindset in 2023 comes as 73% said most of their purchases last year were impulsive.

Consumers are also more apt to look for bargains this year, as 58% said impulse purchases had to be on sale. This compared to 32% last year. A majority of 53% said they always look for deals or coupons before a purchase. Spontaneous purchases, or “impulse buys,” are down 48% in 2023, and 72% blamed inflation, OnePoll reports.

“With shoppers stating that they are more likely to make impulse purchases on necessities than luxuries while simultaneously reporting a decrease in impulse spending, we may be seeing a shift in how consumers define an impulse purchase,” said Vitaly Pecharsky, head of deals for Slickdeals, which commissioned the OnePoll survey. “Shopping opportunistically when there’s a sale on something you need like toilet paper or pantry snacks can ultimately save you money in the long run.”

In mid-year, market research firm Numerator released a report on consumer sentiment, looking at five consumer segments based on income and other demographics. The study found that 63% of consumers say they feel “extremely” or “somewhat negative” about the economy. The survey found that 68% said they believed the U.S. was in a recession to start July, and 61% said the country would be in a recession a year from now.

A positive metric in the study was overall job security among 60% of respondents and 20% who said their households got a raise in 2023. That said, Numerator found that the top place for cutbacks across all five income demographics was on restaurant spending and food takeout. The survey found 52% overall said that was a definite place to reduce spending.

More discretionary spending cutbacks are planned in recreational activities such as going to the movies by 42% of overall respondents. Even the top two income demographics rated recreational spending as a significant place to cut back.

Just as the OnePoll survey found, apparel is another area where 42% of Numerator respondents said they would cut back spending, and that was again felt by all five of the income demographics polled by Numerator.

Travel remains a place where retired Boomers and middle-class respondents said they would continue to spend in 2023. The lower income demographics and the highest professional income category said they would curb travel spending.

All income categories said they would trim subscriptions and memberships, with 38% making cutbacks this year. Spending on home accessories is another area where all income groups plan to reduce spending. Other discretionary areas where consumers plan to curb spending are electronics (30%), desserts and sweets (30%),  indoor and outdoor furniture (29%) and beauty and cosmetics (27%).

Consumer spending has been muted overall when adjusted for inflation. The July report from the National Retail Federation said the spending pace is slower, and retail sales are cooling through June. June’s retail sales rose 2% overall from a year ago, while inflation was up 3%, indicating retailers essentially saw fewer unit sales. Food inflation was up 5.7%, while energy costs were down 16.7% from a year ago. Core inflation that excludes food and fuel rose 4.8%, well above the 2% overall retail sales growth.

Retailers are reporting second-quarter earnings this month, and analysts are calling for a mixed bag, with Walmart seeing higher revenue but lower net income and Target expected to post a 2% drop in revenue. More discretionary retailers like Home Depot and clothing specialty stores like GAP are also predicting lower revenue and net income from a year ago.

Meanwhile, dollar stores expect to outperform other segments. Online marketplaces like Etsy and Amazon have reported strong sales through July with a more cautious outlook for the back half of the year.

NielsenIQ recently reported that 90% of consumers are skimping on grocery bills and buying what’s necessary while leaving out items like air fresheners and lawn fertilizer. The researcher said that is much higher compared to 35% of shoppers buying only essentials in March.

“Consumers are hitting a breaking point,” said Carman Allison, vice president of thought leadership in North America at NielsenIQ.

He expects consumers to be stretched for the next two years before inflation is tamed.

Consumers polled by the University of Michigan in July were more upbeat, registering the highest sentiment level since September 2021. Lower inflation and job stability fed the optimism.

“Sentiment does not always correlate with consumer behaviors. What people are actually doing with their money is far more crucial than how they are feeling,” said Sucharita Kodali, a retail analyst at Forrester.

She said analysts would listen to retailers as their second-quarter sales reports are filed this month for a more concrete reading on consumer spending and buying behaviors.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.