Shoppers are at the Citadel Outlets in Los Angeles.
Jonathan Alcorn | Reuters
Affordability is the number one concern for consumers globally, new data released Tuesday by EY shows.
The price worries could suggest trouble for retailers that are relying on promotions to win over cost-conscious customers. Those companies could see their margins under pressure when they report earnings over the coming weeks.
In a consumer sentiment survey of 21,000 shoppers across 27 countries, 35% of respondents said “affordability” is now their leading concern when it comes to choosing what to buy, according to EY’s Future Consumer Index. The survey’s respondents cited the answer more than any other concern.
That’s up 10 percentage points since Oct. 2022, the numbers show.
“That’s having knock off effects in terms of what people are shopping for, where they’re making substitutions from national brands to private labels, how they’re thinking about scaling back on things that are not essential to them,” Kristina Rogers, EY Global Consumer Leader, told CNBC in an interview. “And similarly around loyalty. They’re more than willing to go somewhere else if there’s better value elsewhere, if they can do something to reduce costs in their budget.”
Retailers are likely to lean on promotions to keep struggling customers buying and are “already trying” to do so, even with the hit they are taking to profits, Rogers said. Compounding the issue is growing research showing a shift in consumption habits, she said.
In the past when consumers were buying something on sale, they tended to spend the same amount they would have if they bought the item at full price by adding a few extra items to the cart. But these days, some are buying less, Rogers explained.
“The whole idea is for me to buy more,” said Rogers. “That doesn’t mean I’m going to buy more. It just might mean I come to you and not your competitor… So, you know, I don’t know that helps in the way it might have in the past,” she continued.
The findings come as major retailers, such as Home Depot, Walmart and Target, are releasing earnings this week.
The earnings will offer a glimpse into consumer health and how heavily companies have been relying on promotions to keep shoppers limping to the checkout line in the face of persistent inflation and rising debt at sky-high interest rates.
Retailers that largely sell apparel, shoes or home goods are most likely to see squeezed margins due to promotions this earnings season, according to analysts and research.
“I think we’ll still hear some hurt from Target. I think Macy’s you might hear some of that come through,” said Jessica Ramirez, a senior analyst at Jane Hali and Associates. “Vans is still coming through some promotions that are likely to hurt them. Victoria’s Secret as well. They’ve been very promotional. And then the hardlines, William Sonoma.”
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