consumer trends: spenders don't care what economist think, back-to-school, and outdoor tailwinds
What you’ll learn:
- Why the finance sector thinks the outdoor industry has some tailwinds pushing it to continued success.
- Why back-to-school season may indeed be the most wonderful time of the year for retailers.
- How consumers really don’t seem to care that economists think they shouldn’t be spending as much as they are.
Verde Consumer Behavior Report - August 4, 2021
investment bank is still bullish on outdoors
On July 22, 2021, the investment bank PJ Solomon issued its Q2 market update and overview for the sporting goods and outdoor sectors. It puts firm numbers to what we know: participation in outdoor recreation is up and sales (in most categories) are strong. Even better news: they’re predicting longevity in the growth.
The authors identified three, emerging, post-pandemic tailwinds that will drive a step-function change for long-term growth:
Reverse urbanization is driving outdoor participation and sporting goods consumption.
After years of trending toward experiences and services, 2020 pushed spending toward things, like gear.
The demand for isolation drives growth in the sector, especially encouraging first-time participants.
Bottom line: PJ Solomon thinks outdoor recreation is a good buy. There’s a lot to dig into in the report, from participation growth figures, to fiscal returns, and more. It’s worth a complete look.
will back-to-school crush records or will Delta crush it?
Back-to-school season is here and early indicators suggest it’s going to be huge!
Based on a survey of 1,200 parents, Deloitte predicts a 16% jump over 2020 in back-to-school spending, with parents planning to spend an average of $612 per child. According to NPR, the National Retail Federation is even more bullish with forecasts of $849 average spending per child. For college students, ramp that number up to $1,200.
In 2020, overall back-to-school spending was flat or up minimally, which surprised a lot of people considering schools were in limbo or closed. Spending just morphed from backpacks and notebooks to digital learning staples, like at-home desks and headphones.
This year, the big winners are expected to be:
Technology and electronics up 37% (Deloitte). Digital learning changed habits in 2020, and families want to be prepared for whatever this school year might bring.
Apparel and footwear. We all know what a year of sweatpants can do for morale.
Deloitte added a new category: COVID-related items. It covers a wide range of products from hand sanitizers and masks, to work chairs and home desks. The category is expected to grow 42% over 2020.
Traditional school supply sales look to stay steady or flat.
It’s worth noting that some sources suggest back-to-school spending will grow, but they offer significantly lower per-student average spend totals. For example, Retail Dive cites a KPMG survey that estimates an average spend of $268 per student.
Across the board, there seems to be a palpable excitement and hopefulness among parents and students that school will return to normal. The varied sources report a yearning for organization, the camaraderie of being with classmates, and reliable schedules. Additionally, there is a pent-up demand for early learning (preschool and kindergarten) and college courses, as many potential students in 2020 chose to postpone their start until this year.
The increased child tax credit that kicked in recently should help boost sales and mitigate the negative effect of inflation. But what remains to be seen is what will happen if the spiking Delta variant will throw another hitch in the giddyup. Fingers crossed for good news.
inflation up; savings down; spending with abandon
Last consumer behavior report we referred to the Axios story titled, “Consumers complain about high prices, but buy anyway.” Update? More of the same.
On July 30, 2021, the Bureau of Economic Analysis released June 2021 economic numbers.
Personal income was up 1% to $26.1 billion.
Disposable personal income (DPI, i.e. savings) decreased 0.5% to $2.6 billion.
Personal consumption expenditures (PCE) increased 1% to $155.4 billion.
Excluding food and energy, PCE increased 0.4%.
PCE on goods actually decreased 0.2%, but…
PCE for services (travel, tourism, dining out, medical) increased 0.8%.
Price indexes on PCE (i.e. cost of goods and services and inflation) increased 0.5%
Diane Swonk, chief economist at Grant Thornton, provided an analysis of what this means on the ground. Some key points:
Inflation rose in June, yet the PCE rose at its highest pace since 1991.
Key rebound areas in spending: used vehicle sales, airline fares, hotel rooms, and rental car fees.
Travel-based inflation is predicted to be temporary, due in large part to pent-up demand and enthusiasm after a stay-at-home 2020.
Federal Reserve Chairman Jerome Powell anticipates travel-based inflation will moderate significantly in the second half of the year.
This was the third month of contraction in DPI, as consumers spend what remains of stimulus checks and feel comfortable jumping into their savings.
Higher wages are a significant driver of personal income expansion, but the rate of growth in wages is expected to slow down.
Swonk expects the child tax credit to give a little push to the economy and personal income but has concerns that falling savings rates could put consumers back into trouble if the Delta variant continues to rage. At the moment, though, consumers are spending right through outbreaks, inflation, and other uncertainties.
Our take: Give the people what they want! There may be uncertainty around the corner, but consumers are proving either resilient or too fed up to not live for the moment. Despite some hurdles, like rising prices, slow supply chains, and travel challenges, people continue to spend on goods and services.
As we head into another budgeting and planning season for manufacturers and retailers, we’re facing questions and pandemic-fueled transitory periods that we can’t predict with certainty. With that in mind, remember that resilience is a strategy. Make hay while the sun shines and support your customers in exploring their new passion. But run scenarios and plan for options if the roller coaster of the past 18 months begins to climb another ascent.
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