The COVID-19 pandemic has forced many people to cut into their savings. Numerous logistical issues have caused major delays, and some of these issues persist today. In 2020, inflation began to increase, and it became a serious issue by mid to late 2021 as consumers continued to cut into their savings.
Inflation is at the forefront for consumers and retailers alike during this holiday season. In the United States, Deloitte found that 37% of households find their financial situation worse than last year, and 73% expect higher product prices this year. Such concerns have led to shopping sooner, with 51% spending more due to higher costs and 66% spending less for the same reason (Handrinos et al., 2022).
Inflation not only impacts spending but also how consumers view retailers. Deloitte found that 61% of consumers believe that companies are profiting because of inflation, and 65% will change brands if they find prices too high (Handrinos et al., 2022). In reality, there is often somewhat of a disconnect between what retailers believe about consumer desires and actual consumer expectations.
For example, according to a First Insights and WWD study of 1,400 U.S. consumers (Taylor, 2022):
- 52% of retailers believe consumers are spending less on apparel, footwear, and accessories, but only 40% of consumers indicate that they are doing so.
- 45% of retailers expected lower casual wear sales, but only 31% of consumers have cut back.
- 40% of retailers believe that consumers have cut back on home decor and furniture purchases, but only 22% of consumers state they are spending less in this area.
Because of the current economic climate, some consumers continue to take out loans and increase their credit card debt to compensate. The Fed and banks have indicated that inflationary descent has started, but it will be a slow process.
How inflation is impacting consumers’ shopping habits
Rising costs seem to be a greater concern in the European market, with 61% of consumers stating they are worried about the personal impact of inflation. An IRI report surveying consumers in the U.K., France, Italy, Germany, Spain, and the Netherlands found that 71% have already changed how they buy and use everyday products, and 58% claim to have already cut down on essentials such as driving to work, skipping meals, and lowering heat (Taylor, 2022).
Brand loyalty rarely trumps cost, with 26% of consumers shopping at another retailer if their go-to brand is unavailable. If the brand isn’t on a promotion, 34% go elsewhere, as do 41% if the retailer does not offer enough deals (Taylor, 2022).
While the top-three inflation concerns for consumers are grocery prices, gasoline prices, and the high price of dining out, the textile industry is not immune to consumers’ tightened wallets (Taylor, 2022). In China, 45% are taking better advantage of sales, discounts, and promotions when buying clothing, and 34% are spending more time researching what they plan to buy. When it comes to clothing for themselves, 31% are buying less or putting off purchases (Cotton Inc., 2022). In Mexico, 50% of consumers are buying less or putting off purchasing clothing for themselves (Cotton Inc., 2022).
How this will impact the textile industry
ProTecht team member Stefan Krueger shared his economics expertise about how inflation will impact the industry. He stated, “Brands are delaying their purchase orders because, (1) loan interest rates are at their highest since 2001, and (2) consumer uncertainty is high, which means that data is not reliable to predict their decision-making.” He continued, “Consumer debt has sky rocketed, meaning that the spending we have seen this year that was indicated as irrational will eventually come to an end. It is advised by several banks to expect a recession or negative growth for several quarters of next year.”
Stefan also addressed how brands/retailers can respond to and remain successful amidst inflation. He noted four things already happening that help:
- Logistics/Supply Chain issues are slowly improving.
- If we recall what happened during COVID, brands and retailers rushed and ordered more goods than normal so they could increase their inventories. This overwhelmed supply chains and caused goods to arrive exceptionally late. These issues haven’t necessarily been resolved, but no one is making abnormally large orders, and with consumers not interested in buying goods at such a rate, so we don’t need to worry.
- Brands/retailers continue to near-shore their supply chain to POS; this improves and facilitates more accurate orders and not having to place orders as far in advance.
- For American brands and retailers, the USD is very strong right now. Even with high interest rates, importing goods is optimal. The Fed's actions have lifted the dollar's relative value by nearly 12% against other currencies over the past year. So knowing that the dollar goes further abroad right now, if your customer base is not impacted by the economic conditions around us, then making choices right now is crucial.
References
Cotton Inc. (2022). Consumers and inflation - China. https://www.cottoninc.com/market-data/supply-chain-insights/things-to-know-consumers-inflation-china/
Cotton Inc. (2022). Consumers and inflation - Mexico. https://www.cottoninc.com/market-data/supply-chain-insights/things-to-know-consumers-inflation-mexico/
Handrinos, N., Rogers, S., Skelly, L., & Sides, R. R. (2022). 2022 Deloitte holiday retail survey. Deloitte. https://www2.deloitte.com/content/dam/insights/articles/us175738_holiday-retail-travel/DI_2022-Holiday-retail.pdf
Taylor, G. (2022, October 26). Are consumers really as cash-strapped as retailers think? Sourcing Journal. https://sourcingjournal.com/topics/consumer-insights/retailers-consumer-spending-recession-economy-inflation-sustainability-first-insight-bain-iri-383617/
