The Supply Side: Survey notes impact of inflation, but consumers still spending

U.S.-based fintech Bread Financial found that half of middle-class consumers are spending more than last year because of inflation. The financial services firm conducted surveys between October and December 2023 and again in January 2024 to gauge consumer spending patterns and intentions post-holiday.

A separate report from Pew Research notes that the middle-class segment with incomes between $45,000 and $145,000 comprises half of the U.S. shoppers and makes up the largest share.

Bread Financial said 43% describe the economy as very good, but 59% are also worried about inflation.

The survey also examined attitudes toward home ownership, which has become harder to attain amid high interest rates and escalating home prices. Nearly half (48%) of middle-class households said homeownership was part of their goal, and 41% said so was being able to retire comfortably.

The survey also found that home ownership was out of reach for 16% of middle-class households. The same was true for 21% who couldn’t comfortably retire and 23% who said they wouldn’t ever be debt-free.

While 91% said their spending was more need-focused than want-focused, discretionary spending, including dining and buying beauty and personal care products, was still a part of their lives.

Consumers also have higher expectations from brands, according to the report. A whopping 98% of the surveyed shoppers said retailers could do more to meet their needs, including offering better pricing. A majority, 58%, said they expected frequent sales and promotions, and 47% wanted better customer service. And 37% said they expect enhanced loyalty programs from the retailers they frequent.

Survey respondents emphasized brand loyalty in general, with 47% of households indicating they shopped at retailers that had the brands they loved. While brand loyalty was necessary, so were exclusivity and convenience, as 42% of middle-class households shop retailers because they have specific items that can’t be found anywhere else and 33% like to shop close to where they live.

Value-conscious consumers also use coupons, prompting one-third of households to make purchases they might not otherwise have made. The survey also found that 77% of households use cash or debit cards for most purchases. Still, 66% said they also use credit cards for more discretionary purchases. One-third use gift cards, 27% said they use store credit cards, and 10% of middle-class households use buy now, pay later options.

The survey found that Gen Z and millennials between the ages of 18 and 42 were four times more likely to use buy now, pay later than their older counterparts. The younger generations were also twice as likely to want specialty services from retailers like buying online and pickup in-store, personal shopping assistance, or social commerce events.

“Looking at the rising generations of the middle-class shopper, if Gen Z and millennials are in your customer base, meet them where they are, with attainable — yet aspirational — products, payment options and engaging digital experiences,” Nick Antonelli, CMO at Bread Financial, noted in the report.

Antonelli said middle-class consumers still show resiliency, meeting their needs and spending on select wants. He said retailers wanting to court these consumers would need to offer value-based items and position products as essentials to end up on the right side of the need versus the want equation.

Antonelli said retailers must build long-lasting loyalty through enjoyable, convenient experiences differentiated by shopping mode and products difficult to find elsewhere. He said retailers must understand that younger consumers are frustrated that their needs aren’t being met and that much of the American Dream seems out of reach. He said this important cohort of consumers expects to be engaged, and they will reward those retailers who provide compelling value.

Bank of America (BOA) analysts reported this month that consumer spending momentum is soft but stable. There are signs that lower-income household spending is slowing, and the same is true in some middle-income households. That could reflect some momentum loss at the labor market’s lower end.

BOA reports that discretionary spending among even higher-income ($200,000 to $600,000) households remains weak. Only incomes over $600,000 at the top end are seeing stronger spending.

“We see a continued rise in the proportion of households using ‘buy now, pay later,’ but at a much slower pace. Our latest data shows adoption has slowed across all income groups, particularly in higher-income households,” the BOA report noted.

They also cautioned that total credit card spending per household rose 2.9% year-over-year in February.

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 Firebend.