consumer spending is up, but economists are still baffled
What you’ll learn:
- Consumer spending was up in Q1, but a weak jobs report and no agreement on inflation has economists flummoxed.
- AI is better than you are gauging at consumer sentiment in surveys.
- What can we learn from Dick’s Sporting Goods endless stream of new concept stores? (Spoiler: How to make every customer feel special.)
Verde Consumer Behavior Report - may 13, 2021
Economists are baffled. The April jobs report came in far worse than expected, but consumer spending is up. The stock market continues to soar. No one can seem to agree on inflation. Many categories of outdoor gear sales are (still) on fire. Some households have burned through their savings, but overall household savings have nearly quadrupled in 18 months.
Eventually, clarity will come out of the confusion. Eventually, consumers that went outside because it was the safest (and the only) option for free time, will have other experiences available to them. Outdoor brands and retailers need to be focused not only on how to meet their customers’ expectations today, but also on how to convert 2020’s influx of new outdoor participants into lifelong enthusiasts.
Consumer Spending Up in Q1
The Commerce Department released first quarter spending data at the end of April. Quick recap of the key findings, courtesy of The New York Times:
The overall economy (GDP) expanded 1.6% in Q1
If that continues, the annualized GDP expansion for 2021 will be a whopping 6.4%
The big story was consumer spending, fueled by stimulus checks, accrued savings, and the optimism around vaccinations.
Combined consumer spending on goods and services rose 2.6%
Spending on goods in Q1 alone was up 5.4%, which places it a solid 12-13% above consumer goods spending in Q4 2019 (pre-COVID)
Spending on services has risen consistently since the Q2 2020 bottom, but is still approximately 6% below Q4 2019 levels
After tax income, adjusted for inflation rose 12.7% in Q1
Collective household savings soared to $4.1 trillion in Q1 2021, compared to $1.2 trillion pre-COVID
The lesson here is probably more about the American psyche than the American economy. Ben Herzon, executive director of IHS Markit, says in the piece, “To some extent, when people have money, they’re going to spend it. If they’re not spending on services because they’re not going to movies or amusement parks, they’re going to derive utility from goods.”
Will AI Gauge Customer Sentiment Better Than Your Survey?
Two questions almost ALWAYS show up in customer satisfaction surveys. Often, they’re the ONLY questions asked. They are:
How was your experience (1-10)?
And, would you recommend us to a friend (1-10)?
“The problem,” according to the Harvard Business Review, “is these surveys can’t pick up important emotional responses and end up missing critically important feedback as a result.”
As marketers, these questions make sense. As customers, few experiences are that cut and dry. The result is that most companies relying on these quantitative tools have blind spots around what their customers actually think and feel.
A research team at Harvard analyzed comments offered in conjunction with quantitative surveys to determine if the “ratings” (i.e. 1-10) accurately captured customers’ true sentiments. One finding was overwhelming. Customers who’d had a problem that was fixed scored that company much higher.
While it may feel good to see “10s” across the board, the causal issues that required fixing were lost in the mix.
To address this, the Harvard team applied an AI tool using natural language processing. Based on seven customer experience touch points, the AI is able to:
Show you what you’re missing in customer feedback (and therefore find a solution)
Train your employees based on what your customers most care about
Determine root causes of dissatisfaction or unrecognized CX friction
Capture customer emotional and cognitive responses in real time
Spot and prevent decreasing sales
Prioritize actions to improve CX
The article didn’t identify who is providing this AI service. Keep an eye out for it to become more common.
Yep, People Want to be Outside
Axios reported on a study out of Vanderbilt University that analyzed 100,000 moves over the past year. It confirms empirically what we knew anecdotally: people want to spend more time outside.
The primary focus of the study was to determine why low-income and high-income (earning over $100,000/year) households moved 2020. Just as before the pandemic, low-income households moved in 2020 for work or cost-of-living considerations.
Among the high-income households, 75% reported moving because telework opportunities allowed them to do so. No longer bound to an official office, they moved from urban and commerce centers, like San Francisco and New York, to areas with more open space, outdoor activities, and access to outdoor recreation. Expect this trend to continue for the next few years.
The New In-Store Retail Model is...Everything
Dick’s Sporting Goods has never shied away from a concept store. But the company went concept crazy over the past 12 months, launching a warehouse concept, two discount concepts, an outdoors concept, and an elevated experiential concept. According to Retail Dive, the sporting goods chain is testing all sorts of ways to elevate the customer experience.
What’s interesting is the full range of ideas they’re exploring, from discount to high-touch expertise. Here at Verde, we’re known for saying if you try to be exceptional to everyone, you’ll be exceptional to no one. But we also advise to meet your customer where they are.
With both of those mantras in mind, there may be a lesson for specialty retail around the pandemic customer. For every customer who has been able to save and now wants to spend on premium products, there’s likely also a customer who was financially challenged in 2020 but still needs to spend.
Specialty retailers should be attuned to this. For instance, “sale” sections can provide the same exemplary shopping experience as premium-priced sections, with merchandising and service. Especially now, why not provide the positive sensation of getting a great deal, instead of the limiting sensation of only being able to afford the cheapest option? This is how you earn a lifelong customer.
Our Take: Especially with traditional travel and international travel yet to rebound, all indicators are that consumers will continue to be focused on camping, outdoor recreation, and outdoor-focused activities. From the marketing and communications side, it’s critical that brands are focusing on how to turn a COVID-inspired customer into a loyal, lifetime customer.
In 2020 and continuing today, there is an historic influx of new outdoor consumers. It would be disingenuous to pretend that their purchasing decision wasn’t influenced in some way by the fact that COVID limited their spending and time-use options. We have a huge opportunity to encourage these first-timers and budding enthusiasts to incorporate their new activity (and your brand) into their lifestyle long-term.
How? Focus on welcoming inexperienced consumers into the outdoor community. Provide clear pathways for their immersion into the sport or activity. What gear should they buy next? How can they improve their experience? What are the friction points for enjoying the activity, not just the friction points for buying the gear? Provide solutions -- via content, social and retail training -- for both.
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