Consumer Behavior and Economic Trends

I’ve been headhunting in the CPG industry for the past decade, and I’ve never seen a post-inflation market like we’re in right now. For the past three years, customers have been capitulating to price hikes by extending their budgets. But now, they’re at a breaking point. American families, already tethering on edges of their budgets, do not have the ability or the desire to expand their budget in order to accommodate increased prices. I’m sure you’d agree with this, because my family certainly does. With grocery bills through the roof, we’d rather skip on groceries and essentials rather than paying a premium right now. A couple things led us here, starting the pandemic and the post-pandemic impact on spending and savings. Secondly, the wave of AI and tech developments that caught us off guard. So, where do the companies go now? Once the “price increase” playbook is done, CPG brands can only win in both value and volume by shifting gears. In my chats with executives, I’m sensing a change in tone. To stay competitive, they’re looking for ways to shift from the post-pandemic survival mindset to a growth-focused one that accommodates the customer as well. Rather than hiking prices, the focus is now on bringing down costs, and getting to terms with consumer’s limited budgets and increasing product choices. Layoffs aren’t the only way to bring down costs. In my view, CPG companies do have the leeway to embrace data-driven innovation and efficiency to cut costs. Here are some of the ways in which companies can use AI and ML to achieve targets in 2025 and beyond: 1/ Predicting the demand: Post-pandemic behavior is tough to predict, especially in CPG markets. With AI, the companies can now leverage real-time insights from sources like point-of-sale systems, social media, and even economic indicators to see future trends more clearly. PepsiCo, uses Tastewise to track what consumers are eating across 60+ million touchpoints and making decisions that align with local preference. 2/ Inventory management: With AI-powered predictive analytics, companies are now turning inventory management into a science. Procter & Gamble’s Supply Chain 3.0 initiative is one example of this shift. 3/ Increased personalization: Leaders are tapping into geographical intelligence to connect meaningfully with audiences. Estée Lauder has a voice-enabled makeup assistant for visually impaired customers, reaching a new market while boosting brand loyalty. Bottom line is: customers are no longer meeting brands where they’re at. It’s high time that companies start caring about customers and their shrinking bottom lines. Are you excited to see your grocery bill go down in the next few months? #CPG #AI #ML #fmcg #marketing #trending

After digging deep into the economic data released last week, from GDP to jobs, and all the releases in between, here’s why I’m even more concerned about the economy’s prospects: 1. The disconcerting Q1 GDP decline was lifted by consumers and businesses buying lots of stuff (e.g., vehicles & computers) front-running the tariffs. This steals from future spending and investment, creating an economic air pocket. Q2 will be another tough quarter for GDP. 2. I don’t take solace in the ostensibly solid April employment gain. The BLS survey, whose sample week was April 6th -12th, was conducted too soon after the “Liberation Day” tariffs for it to affect payrolls. Sizable downward revisions to previous months’ job gains are also becoming a theme, consistent with a weakening job market. There’s lots to consider, but if you want the gory details about last week's economic stats and what it all means for the economic outlook, tune into this week’s Inside Economics podcast, “Every Rose Has Its Thorn” here: https://lnkd.in/eGWxbu6H #gdp #employmentreport #podcast

I noticed that the luxury slowdown has been analyzed from the geo-political, macro-economic and market growth angles. But the problem is cultural. Luxury lost its soft power. Luxury’s soft power kept its value and price together. Price made something more desirable (the Veblen effect) and no one questioned the price thanks to perception of value. This value was material, but mostly cultural and social: when an item sold too well or too quickly, a luxury brand would discontinue it. Cynic is a man “who knows the price of everything, and the value of nothing,” noted Oscar Wilde. He might have as well been describing today’s luxury market. Seemingly overnight, luxury products’ price unbundled from their perception of value - their desirability - and turned them into commodities. Luxury exists in the social and cultural exchange system, not in a market segment. It is glib to think that a different market growth strategy will save luxury. Luxury doesn't need a new competitive strategy, it needs a new cultural strategy. Where, exactly, is the value? Luxury is a game of identity. Identity is what differentiates luxury strategy from strategy of premium and mass brands. Identity commands value perception, and prevents cost-per-wear and price-value calculus. It also makes a brand incomparable: premium and mass brands communicate how they are better/cheaper/faster than competition. Luxury brands don’t. (Or, at least, those luxury brands that retained their incomparability do not: Hermès sales are up 11.3 percent in the Q3 of 2024. Bottega Veneta and Brunello Cucinelli have also grown, as did Prada.) The list is short. Luxury brands literally lost the plot. Instead of doubling-down on identity, most luxury brands doubled-down on creating more products. Without identity, a product is commodity. Without identity, a brand is a glorified production facility. A lot of luxury brands organized themselves as commercial entities fiercely focused on their own efficiency, cost-cutting and bottom line. This growth strategy made a lot of them forget who they are, what they stand for, and the role they play in culture. Read the full analysis on The Sociology of Business: https://lnkd.in/e34H9c7m

Tariff Terror The two major surveys of consumer attitudes, the Conference Board Survey of Consumer Confidence and the University of Michigan Consumer Sentiment Index have both deteriorated sharply since November 2024. The losses were due to a toxic mix of rising uncertainty on the trajectory for inflation - expectations are moving up - and an erosion in job prospects - they are moving down. The deterioration is broad based, hitting all income and wealth levels, ages, races and party affiliations. Headlines regarding tariffs and high profile layoffs no doubt fueled those concerns. The problem is that those concerns are starting to show up in the hard data. Consumer spending, which is the single largest driver of overall growth in the US, slowed markedly in the first quarter. The slowdown in spending, notably on leisure and hospitality coupled with a rise in the saving rate, suggests that consumers are hunkering down. That is to be expected in a highly uncertain policy environment. This is the same time that the PCE measure of inflation, which the Fed targets, accelerated in February. Other input prices have risen ahead of tariffs as firms scramble to front run tariffs. Investment is rising for the moment, as firms stockpile ahead of tariffs. Those shifts are borrowing from the future. The trade balance is widening on the front-running of tariffs. That is a drag on growth. Those figures include a surge in gold bullion, which is not included in the GDP data. No matter how the data is cut, we are seeing a slowdown in overall economic growth that is punctuated by rising prices. Employment has held up but is looking much weaker in March. That gets us edging closer to a mild bout of stagflation - rising inflation and unemployment. The rise in unemployment is limited by a loss in participation in the labor force. Foreign born workers participate ar higher rates than native born and older workers. The result represents a conundrum for the Federal Reserve. Much of the Fed’s leadership has evoked the 1970s as a cautionary tale. A failure to eradicate inflation and stimulate too soon triggered a vicious cycle of inflation and unemployment, or stagflation. One Fed leader has suggested that it might need to hike rates. When were tariffs deflationary? The Smoot Hawley Tariff Act of 1930 tipped off a trade war with 25 countries and a 67% drop in global trade, which plunged the global economy deeper into the depths of the Great Depression. That was chilling. Our analysis suggests that the effective tariff rate will easily lapse the peak of the 1930s by year-end. We have retaliation and a mild bout of stagflation. No rate cuts in such a scenerio.

Across most of the world, the luxury boom has come to an end and brands are now finding it much more difficult to engineer growth. The one notable exception is Japan, where luxury sales are soaring. Despite an overall decline in revenue during its first half, LVMH reported that its sales in Japan were up by double digits. Even beleaguered Burberry, whose comparable revenue plunged by 21% in the latest quarter, managed to notch up a 6% increase in Japan. What’s interesting is that Japan’s luxury boom isn’t actually a sign of strength; it’s a consequence of wider weaknesses in the industry. Most of Japan’s success is thanks to Chinese tourists who, feeling the pinch at home, are seeking luxury bargains abroad. Due to the weakness of the Yen, Japan has become an ideal destination. This transfer of spending, and of sluggishness with the Chinese consumer more generally, shows itself in the poor luxury results in China. Some of this is because of financial pressures, including a real estate slump impacting on confidence. However, some is also down to social factors: conspicuous and ostentatiousness are increasingly frowned on. There is growing social shame in flaunting luxury. Without China as an engine of growth, and with much of the rest of the world suffering from a modest consumer pullback, the luxury sector has lost some of its luster … at least for now.  #retail #retailnews #luxury #fashion #apparel #economy

American consumers confidence plunges amid sweeping tariffs in effect The number one keyword that everyone needs to focus on in this tumultuous time is confidence. A lack of confidence from businesses, the financial markets, and consumers alike can become a vicious cycle that can push an economy into a recession. The financial markets have already cast their vote of no confidence in the current tariff policy and the escalating trade war between the U.S. and China, as both the dollar and bond yields have dropped significantly. Following the release of the University of Michigan consumer confidence data, American consumers have also shown a vote of no confidence. The index has fallen to its lowest level since 2022, while short-term inflation expectations have risen to their highest levels since the 1980s. We will soon receive more data on business confidence. However, given the current level of uncertainty, we should expect a sharp decline in business sentiment—likely resulting in a significant pullback in capital expenditures. This drop in market confidence is one of the main reasons we believe the probability of a recession in the next 12 months is now much higher than it was just three months ago. The final piece of the puzzle—and perhaps the biggest question on everyone’s mind—is: “How will the Fed react?” As things stand, we believe the Fed will have to prioritize controlling inflation over addressing unemployment, as both inflation and inflation expectations risk spiraling out of control.

Today’s PCE data supports a picture of the U.S. economy that is moving in a more stagflationary direction (lower growth, higher inflation), albeit slowly. Some of my takeaways:  ◾ Core PCE prices rose by 0.27% month-over-month, right in line with expectations based on the previously released CPI data. ◾ Core PCE inflation is now up to 2.9% in year-over-year terms, after hitting a recent low of 2.6% year-over-year in April. After having trended down for three years, core inflation is now trending up again. This has been driven heavily by core goods inflation, which accelerated to 1.1% year-over-year in July from 0.3% as of April, owing likely to tariff effects. But of course, the pass through of tariffs into consumer prices is still very incomplete. ◾ At the same time, consumer spending is trending down slightly. While real PCE grew by a solid 0.3% month-over-month in July, growth in year-over-year terms has still decelerated to 2.2% as of July, down from a recent peak of 3.1% as of December 2024. That deceleration has been driven by services. Goods consumption growth has been steady, as consumers are perhaps still stocking up on goods in anticipation of future tariff-driven price hikes. Inflation ticking up while growth slows presents somewhat of a quandary for the Federal Reserve. However, we still expect them to proceed with two rate cuts this year, given that expectations of rate cuts have been baked into the market for some time, and because of worrying data recently in the labor market. 

US consumers got a USD 600 billion tailwind from locked-in #mortgages. We estimate the gap between existing and market rates for US mortgages has provided consumers with an extra USD 600 billion since early 2022 (up to 2% of disposable income). This has undermined the monetary #policy transmission mechanism and helps explain why US consumer spending has remained resilient to monetary tightening. The flip side of this means that locked-in mortgage rates may similarly limit the effectiveness of monetary policy easing, adding to the list of downside risks to growth and also to maintain #affordability pressures. For example, year-on-year house price growth has moderated to below 6%, but prices remain 60% above 2020 levels.   During the recent Federal Reserve monetary policy tightening cycle, market rates for US mortgages exceeded the average rate borrowers paid on existing mortgages by as much as 3.2 percentage points. Such a gap has significant economic implications: it lowers monetary policy effectiveness by supporting consumer resilience during hiking cycles and reduces the stimulus effect when rates ease. The structure of the US mortgage market causes this effect. Over 95% of US home loans are 15- or 30-year fixed-rate mortgages. By the end of 2Q24, the market rate for mortgages was roughly 7%, compared to an average existing mortgage interest rate of about 4%. We reviewed this gap for the two years through 2Q24 and estimate that homeowners with fixed-rate mortgages amassed over USD 600 billion in "savings" from their mortgages in the post pandemic expansion, amounting to nearly 2% of personal consumption spending. This helps explain why recent policy tightening did not, initially, appear to slow the economy.   We expect limited stimulus for consumer spending from the monetary policy easing cycle, expected to start in September, due to this low interest rate sensitivity of private consumption. With spending tailwinds fading though and equity markets priced to perfection, the downside risks to growth have risen, threatening a sharper easing cycle over the next year than our baseline currently assumes. https://lnkd.in/eTXtwBjC James Finucane, Mahir Rasheed, Jessica Oliveira Lee  

The surge in BNPL (buy now, pay later) usage during this recent Cyber Week concerns me, and it should concern you too. One BNPL firm reported a 62% increase in order volume and 20% overall increase in AOV compared to last year. Off the chart numbers when you compare to the modest growth retailers saw in overall BFCM order volume and AOV. Well, it's no secret that many US household budgets are stretched after years of price inflation. Still, retailers report that their customers have proven willing to get creative in managing their spending to continue getting what they need (and want). Debt being used to fuel consumption, and that's not surprising, because a lot of households are constrained. Within that debt mix, BNPL is one of the fastest growing segments, if not the fastest growing segment. What does this tell us about the state of the economy, and particularly, those who are lower-income households? Here are the facts: - Financially vulnerable households are nearly four times more likely to use BNPL than financially healthy ones (18% vs. 5%). - BNPL users typically have significantly fewer liquid assets, averaging $2,179 in checking accounts, compared to $6,638 for non-users. - Black, Hispanic, and female consumers are disproportionately likely to use BNPL services. - Users are more likely to have subprime credit scores (580–669), with 43% of BNPL users reporting subprime scores, compared to 24% of non-users. While BNPL continues to grow as a payment solution, the data suggests its rise may be a symptom of financial distress rather than economic health. As BNPL adoption increases, particularly among vulnerable populations, it raises critical questions about its long-term impact on consumer financial stability. This is a conversation the fintech and e-commerce industries need to engage with thoughtfully. Are we empowering consumers or enabling financial instability?

🚨 𝗧𝗵𝗲 𝗹𝘂𝘅𝘂𝗿𝘆 𝗺𝗮𝗿𝗸𝗲𝘁 𝗶𝘀 𝗰𝘂𝗿𝗿𝗲𝗻𝘁𝗹𝘆 𝗲𝘅𝗽𝗲𝗿𝗶𝗲𝗻𝗰𝗶𝗻𝗴 𝗮 𝗱𝗼𝘄𝗻𝘁𝘂𝗿𝗻, 𝗽𝗿𝗼𝗺𝗽𝘁𝗶𝗻𝗴 𝗺𝗮𝗷𝗼𝗿 𝗹𝗲𝗮𝗱𝗲𝗿𝘀𝗵𝗶𝗽 𝗰𝗵𝗮𝗻𝗴𝗲𝘀 𝗮𝗰𝗿𝗼𝘀𝘀 𝗶𝗰𝗼𝗻𝗶𝗰 𝗯𝗿𝗮𝗻𝗱𝘀. Fendi recently announced the departure of Kim Jones, its artistic director, after four transformative years. This shift is part of a larger pattern, with high-profile exits at brands like Gucci and CELINE amid significant sales drops. 𝗞𝗲𝘆 𝗳𝗮𝗰𝘁𝗼𝗿𝘀 𝗰𝗼𝗻𝘁𝗿𝗶𝗯𝘂𝘁𝗶𝗻𝗴 𝘁𝗼 𝘁𝗵𝗶𝘀 𝗱𝗲𝗰𝗹𝗶𝗻𝗲 𝗶𝗻𝗰𝗹𝘂𝗱𝗲: ✅ 𝗠𝗮𝗿𝗸𝗲𝘁 𝗖𝗼𝗼𝗹𝗶𝗻𝗴: After a period of rapid growth, demand has softened, particularly in China, which accounted for 16% of global luxury spending last year. ✅ 𝗖𝗵𝗮𝗻𝗴𝗶𝗻𝗴 𝗖𝗼𝗻𝘀𝘂𝗺𝗲𝗿 𝗣𝗿𝗲𝗳𝗲𝗿𝗲𝗻𝗰𝗲𝘀: There's a noticeable shift away from extravagant styles to more timeless, classic designs, reflecting current economic sentiments. ✅ 𝗘𝗰𝗼𝗻𝗼𝗺𝗶𝗰 𝗣𝗿𝗲𝘀𝘀𝘂𝗿𝗲𝘀: Brands like Gucci reported nearly a 20% drop in sales in the second quarter, affecting parent company Kering’s overall profits. Nguyen Trang, CEO of Le Réussi®, notes, “𝘉𝘳𝘢𝘯𝘥𝘴 𝘢𝘳𝘦 𝘭𝘰𝘰𝘬𝘪𝘯𝘨 𝘧𝘰𝘳 𝘧𝘳𝘦𝘴𝘩 𝘪𝘥𝘦𝘢𝘴 𝘢𝘯𝘥 𝘴𝘵𝘳𝘢𝘵𝘦𝘨𝘪𝘦𝘴 𝘵𝘰 𝘳𝘦𝘷𝘪𝘵𝘢𝘭𝘪𝘻𝘦 𝘨𝘳𝘰𝘸𝘵𝘩.” Experts believe we might be at a temporary low point, as luxury has historically demonstrated resilience during economic challenges. “𝘓𝘶𝘹𝘶𝘳𝘺 𝘪𝘴 𝘦𝘹𝑝𝘦𝘳𝘪𝘦𝘯𝘤𝘪𝘯𝘨 𝘢 𝘵𝘦𝘮𝑝𝘰𝘳𝘢𝘳𝘺 𝘥𝘪𝑝, 𝘯𝘰𝘵 𝘢 𝘭𝘰𝘯𝘨-𝘵𝘦𝘳𝘮 𝘥𝘦𝘤𝘭𝘪𝘯𝘦,” says branding expert David Miskin, indicating potential for recovery. Read More ➡️ https://lnkd.in/g3avWE7n #LuxuryMarket #LeadershipChange #FashionTrends #EconomicShift