The tradeoff economy: Why stressed shoppers are still spending

0:23Melissa Daniels:Thank you.

0:30Melissa Daniels:slash business slash YouTube.

0:38Melissa Daniels:Affiliate marketing is having a real moment, but for some brands, it's still uncharted territory. Do you start with a platform or with publications? Who is actually making money? We're looking into this for an episode of this show, but first, we want to hear from you. Send us your biggest questions around affiliate marketing. We want to hear your frustrations and even your hot takes. If you're running a program or working with creators or just trying to figure out if it's worth your time, let us know what you're experiencing. Send me an email at mdaniels at modernretail.co. That's M-D-A-N-I-E-L-S at modernretail.co.

1:19Melissa Daniels:You can send me a message or even send me a voice memo, and we'll unpack it all in an upcoming episode.

1:35Melissa Daniels:Hello and welcome to the Modern Retail Podcast, our show that covers the ways the retail industry is changing and modernizing. I'm Special Projects Editor Melissa Daniels, joined by senior reporter Gabby Barco. Now, whether or not you work in retail, you've probably been thinking about how expensive everything seems lately. Gas prices are an average of$4.48 a gallon, A new NerdWall report showed that average U.S. travel costs are 7 % higher compared to this time last year. And we're still in this so-called K-shaped economy. That means that spending by higher income households may be masking some lower wage growth, lingering inflation, and the higher costs of living that a lot of us are experiencing right now.

2:18Melissa Daniels:And of course, all of this is impacting brands. Here to unpack these trends is Katie Thomas, the lead of the Carney Consumer Institute. They recently published the Consumer Stress Index that shows historic highs across markets. And it's not just because of any one factor that we're all feeling this way. Katie, welcome to the show. Thank you, Moussa. It's great to be here. Great to talk to you and Gabby. Yeah, we get into this topic a lot with the brands we cover lately. And it's something that really is touching all segments, all global markets. So just top level, you know, tell us a little bit about what we're seeing with consumer behavior right now.

2:56Melissa Daniels:This moment where sentiment is down, but spending is still happening and it just doesn't feel like, you know, your ordinary recession. Yeah, in general, consumer sentiment has just been high on everyone's minds for the last couple of years, especially this mismatch between poor sentiment but persisting spend. And part of that is because there's been these like kind of one off situations that people have been reacting to. What we saw in our most recent consumer stress index, though, was that we're finally seeing that real pile on of a lot of things stressing consumers out at once. And in part, it's due to some of this gas price increase.

3:34But we heard consumers have increased stress around general cost of living specific to food affordability, concerns over debt and lack of savings. And then the impact of global conflicts and sort of the heaviness that, you know, even though that may not be as directly related to prices, the heaviness and the anxiety that that causes is some of what is continuing to hold sentiment low and just give people a lot of uncertainty that they struggle with. Yeah, I wanted to jump in and maybe get a little bit more granular about what expenses people are changing up or at least what tradeoffs they're making.

4:15A few years ago, we were seeing and hearing a lot of analysts like yourself, Katie, talk a lot about the experiences, right? Like the sort of, I always think of like the Taylor Swift Airs tour is like an extreme example of this, but people are really putting experiences, whether it's travel or live entertainment at the forefront of their, you know, spending. That's some of that has to do with like the post COVID pent up demand. But we saw that linger for a couple of years, but now it feels like it's a little hard. I mean, we see all these viral posts these days about canceled tours and whatnot, but I think the consumer will tell you, well, I can't do all of it, right?

5:00I can't pay my bills, everything's expensive, and then still consume across all categories because it's just not plausible. Yeah, I think what we're seeing a little bit is a breakdown in this experience versus things narrative. And that's for a couple reasons. One is just a simple price value equation. So you look at something like concerts. We went through a phase where there were some real heavy hitter concerts, Taylor Swift, Beyonce, et cetera, all happening at the same time. And that felt really worthwhile. People were committed to going. And there was a lot of press then about how much, you know, entered the local economy when Taylor was there.

5:39So it wasn't just the concert. It was hotels and restaurants. You were buying something to wear to the concert, all of that. That was still a pretty specific use case. And what you saw was then a flooding of the market of concerts, tours, some artists maybe going for bigger venues than that they could really support, along with Ticketmaster and some of the struggles that have gone on with ticket prices as well. So that was just one example of many where you're seeing people question the price value equation. Is it worth it? Is it priced right for what I'm going to get out of it? We've seen that come through in some more recent research where people have even told us, I would rather spend right now on apparel than dining out.

6:21Food has been an area of real sensitivity in terms of prices. So not just grocery, but also how it feels like your night out at a restaurant is a lot more expensive than it used to be. And that's a highly sensitive, like a highly sensitive point that people anchor on. I remember my average dinner out used to be a hundred dollars and now it's almost 200. You know, there's really that feeling there. And it's like, I'd rather just invest in clothes and identity and buy something, you know, that is a little bit more tangible. Now, one thing we've seen protected in some of this analysis has still been vacation.

6:58So people are like, I'm happy to optimize my grocery spend so I can still go on vacation. But now we're going to see pressure on that from gas prices. So whether you're flying or driving, you're going to be paying more to take that vacation. And so then it starts to become other conversations as well. So this constant price pressure is really putting a strain on all of us and what the right math is for if you're going to buy a physical good versus invest in an experience.

7:28Melissa Daniels:I want to return to what you said and referenced with regards to grocery, because I feel like there was a theme really in the last year, even six to eight quarters of people trading down, doing more private label, that kind of thing. Is that still happening or are we already traded down enough, as it were? Curious what you're seeing as far as the stratification in grocery. Yeah, I mean, we are pretty optimized. That's some of the struggle that we've seen lately is that people feel like they've either optimized already or they've already started to have certain categories they walk away from completely.

8:07So that was something we saw in the last few years is it wasn't even trading down. It was like just, you know, maybe like there's a certain sector like snacks or something that you're just going to buy less of. So we've done a lot of that. But the challenge, I think, overall has been that it's not incredibly linear either to just trade down. A lot of times people are making decisions across the category within the grocery store or across their entire wallet. And grocery in particular has been one that actually we have a lot of great options nowadays in grocery. when you think about the rise of brands like Aldi, Trader Joe's, Costco, Dollar Store, people know how to get the best bang for their buck.

8:47We've also seen some stigma reduction around where people shop. So it used to be like maybe if you were in a certain income bracket, you weren't going to shop at Dollar Store, you might not even shop at Walmart. Some of that's gone away as people have really wanted to make sure that they were getting the right price for their basic items. And so they've optimized grocery a lot in favor of figuring out where they're going to spend and wanting to spend on more highly discretionary categories. So it hasn't felt incredibly traditional in that sense where it's like, oh, the most high discretionary is the most likely to get cut.

9:21In fact, it's like, where is it easiest to cut so I can still have some fun money? We still need some joy in our lives. Exactly. I know. I wanted to double back on the dining out because to me, it feels like the inverse of that is sort of like returning to at home entertaining or hosting. At least that's something brands are telling us and they're focused on right now. It's very much a callback to like lockdown era or COVID, right? So Kate, I'm wondering if in the research or in the surveys, you're hearing anything, you know, that$200 dinner, maybe you'll take that and put it towards a bunch of charcuterie and drinks at home and invite, you know, an entire friends group maybe.

10:10So yeah, I'm curious about that. And sort of obviously that's hurting the restaurant business in a way, but maybe it's not the only alternative. Yeah. I mean, I think for sure. And that's the funny thing with the like experience versus things narrative, right? It's like, where does it begin and end? Because that shows that we're still seeking that experience. And we're just trying to get the best, you know, sort of value for what we're spending. So that$200 for a two to four person dinner can go really far if you're putting together something at home and, and, you know, engaging with your friends in that way.

10:44So that that's where we see people just for like really evaluating where they want to spend. And yes, there was that pent up demand coming out of the pandemic where all we wanted was to be out of the house and to be doing things elsewhere. But just like that, this all comes back to just like sentiment and the price value equation, which is prices just have kept going up. It hasn't really stabilized. There were moments where we thought things were getting better. And then now we're back into gas prices climbing again. And so it's just, you know, it continues to put people in a situation of evaluating where they want to spend and what the best use is of their, not just their money, but their time and energy.

11:22You know, that's the other thing with with dining out is, of course, it felt good to go out and have someone take care of you. But with labor challenges and some of the other issues, we also hear customer service isn't what it once was. So not only am I spending a lot to dine out, but maybe I'm not having a great experience. So all of that feeds together on like the value of that entire experience. And that's where people are saying like, okay, again, if I'm going to spend this much money, maybe it can actually be spent elsewhere. And if I have the right group of friends and we do a charcuterie, we do a potluck, that actually feels easier.

11:59Or even just, I know people that still pick up from like grocery store, like ready-made meals, right? So like you get the fried chicken or what have you, and just like, it's like some hybrid version of going out to eat, but still kind of optimizing the value of it.

12:16Melissa Daniels:I feel like that's a bit of a parallel to what we see in apparel or certain hard goods with the rise of the resale industry, right? People are still wanting that experience of having, you know, a great designer dress, but they don't feel like they need to go to the Chanel store to find it. They're okay going to the RealReal or Poshmark or something like that. Absolutely. We saw that really come through around the holidays and particularly with younger consumers, Gen Z. they you know i had consumers say to me oh i have my eye on this chanel bag on the real real like they're not even going to oh i want this brand new bag instead you know i'm looking for this one on the real real that feels like the right price and sometimes that can add a little bit more uniqueness so you're you're getting something like that's something i'm hearing a bit of oh i want to i have a friend who's in pursuit of a vintage rolex not a new rolex and so you're hearing people really be able to cherry pick how they want to spend.

13:12And this is why, you know, we have these conversations. People are stressed, but they're still spending. Creativity in consumers has really grown in the last five or six years as we've been forced to continue to adapt and as we've been flooded with options in the marketplace. So there's just so many options across most categories right now. They're pretty saturated. So it could be resale versus new. It could be all the options we have within grocery. It could be all the D to C brands, anything you see on TikTok shop. We have so many ways to kind of manipulate and decide how we want to spend. And that's why people have been like, well, I am stressed about the state of the economy.

13:51I certainly feel the constant pressure of pressure of inflation or maybe rising debt, maybe concerns over job security. That being said, I want to live my life. And that's like a psychological element too. We've seen is that spending sometimes is a sense of control and just normalcy. I'm going to go to the mall. I'm going to buy myself a little treat. You know, like I just need to live my life. We can't stay mired in this, you know, total misery. Right. So it's like, those are some of the small ways that it like retail therapy is real, you know?

14:26Melissa Daniels:Yeah. You can't take it with you. Yeah. As we always say. That's right. That's right. Well, it's also like the most American thing you can do, right? Speaking of, I want to talk a little bit about, I'm just, I have America 250 on my mind. And also we have the World Cup this summer. So I want to talk a little bit about how all of this is, how you anticipate this is all going to unfold this summer because we are, you know, being told that this is going to be a really big summer. obviously the travel portion we just discussed is maybe going to be hit and then maybe you're not going to go to a world cup match because they're charging thousands of dollars but what else can you do right like maybe you'll host a viewing party in the backyard that's probably what i'll be doing um or a barbecue or whatnot so yeah katie curious your thoughts there yeah i mean i think that to that point the the price you know price value i know i keep coming back to this but But I think with the options in the market, at the end of the day, oftentimes consumers tell you what value you're worth rather than the other way around, right?

15:34Who really gets to control the prices? And that's what we're seeing with some of these events. So I live in Pittsburgh. We just had the NFL draft here. We saw something similar with Airbnbs where people tried to charge these outrageous rates and then those ones went unbooked, right? I think you're going to see something similar with the World Cup, whether it's the hospitality industry or the tickets themselves. They're going to have to figure out to make sure those stadiums are full. And you see people really questioning, even though this feels once in a lifetime, I don't want to be taken for a ride.

16:08And that's something we talk about with luxury as well. I don't want to be totally exploited even if I have the money or even if this is once in a lifetime. So, yeah, I'm considering how can I, you know, still do something fun out of it. And maybe I'll do it at home. Maybe I'll play an event at a local bar and and just think about like really how I want to spend my money.

16:32Melissa Daniels:Well, and no shortage of good bars in Pittsburgh to watch the draft or watch the World Cup or anything like that. As a former Pittsburgh, great place to hang out. Yes. Well, I moved back here from Chicago. So basically all I know is sports bars. Yeah. It's great culture. It's great culture. There has to be a TV everywhere, you know. Yeah, but it makes for that communal experience, you know. I mean, I feel like especially for things like sporting events or, you know, actually when I lived in L.A., I remember watching like the Oscars and the Grammys at a bar because that's something that people are interested in.

17:10Melissa Daniels:And I was right across from, you know, where they were shooting the Grammys and just at a bar. It was kind of fun. I want to just double click on what you keep referring to, you know, the price value equation. You know, what does that mean from a consumer standpoint? What does that mean from a brand standpoint? I wonder if you can define that for us a little. Yeah, absolutely. I mean, when you think about it, it's simply like the price value is like, is the quality worth the price? And one of the tricky pieces of price is it's actually quite nebulous. Like we think it's incredibly quantified because it's a number and there's, you know, elasticity and all these other ways to analyze price.

17:52But in reality, it's very individual of what I determine is a fair price for something. Right. What I determine, is this worth it? Is this quality worth what it costs? And so that's what we're seeing consumers being forced to evaluate because they're feeling a little stretched, but also because they have a lot of options. So that's the math they're running in their head is what is the right price? Is it worth it? And we have seen, you know, the top of the K prop up because they have had they've been more, you know, able to adapt to some of these prices are more willing to spend money. And then, you know, that's put some strain on on the bottom of the K at times.

18:32But still, everyone is always kind of running that equation through their head of like, does this feel like the right price? You know, is that worth it for me? And just to clarify, we're talking about like household incomes, right? So it's like the wealthier, the top 10 % makes up that top of the K for those not familiar. Yes. Yeah, but, you know, I think no matter what, we also hear constantly that even the top 10%, they still don't want to feel like they're being taken for a ride, right? Like, hence why Walmart's high income household customers grown recently. Exactly. And again, while you've seen luxury, you know, waffle a little bit because both their high income and their aspirational consumers.

19:21So those are the consumers that, you know, maybe buy luxury occasionally as a treat. They're questioning just with price hikes in recent years, if they really are going to go true traditional luxury or if they're going to go. there's plenty of amazing like you know brands that are more affordable luxury we'll call it like that's a sector that's growing which is like that's a great example affordable luxury with an apparel and handbags and accessories of a sector where people want to feel like they're getting a premium experience or premium quality but don't have to break the bank so i think of brands like, you know, Aritzia, Quince, Reformation, like they're kind of in, yeah, they're kind of in that, um, you know, band that has a lot of promise of, um, but then it does come with expectations.

20:12So a lot of times if you're positioning yourself as luxury, like maybe you're expecting a good unboxing experience, good customer service. Like it's not without expectations if you're trying to position still as a luxury competitor. Luxury is such an interesting, you know, example of all of this because we always think of it as more specific as we're thinking about designer brands and whatnot. But I always, I mean, I think of like the coach or the tapestry success story recently and how they basically, I mean, I see a firsthand. I read a lot of Reddit handbag comments about like, if you want value, you go for either secondhand, like at 2010, I don't know, Gucci or Balancer, because, you know, people argue that the leather used to be better.

21:02I don't know, again, how accurate any of this is, if it's all in our head. But that idea of either going vintage or if you're going to go new, like either invest in one piece or go for an accessible luxury brand like Coach, where you know you're going to have the quality. And I think that's really where that success is coming from is bridging that gap, especially for Gen Z. Well, that's where like the interesting role of social media comes into. Like if you're in the handbag conversation, I don't know if you're familiar with Tanner Leatherstein. He's like a guy on TikTok that rips apart bags. And like, I mean, that's one example, but this exists across categories of people kind of questioning, like, is the leather, that you know what quality leather is it what quality craftsmanship is it i follow someone similar around clothing and she's really gotten my head over like polyester yeah everything now i can't see everything is polyester i can't i know but sometimes she says it's okay and it's true right it's like whether it's the style or it is packable like there are times but like when i see now something synthetic or polyester that's a $300 blouse, I'm like, oh.

22:12So it's, you know, we're getting more informed as consumers. So that's a moving target for all brands too. It can be hard to keep up with like, like being in a cool girl moment or cool guy moment doesn't stay forever, right? So like that's the other, you have to find some longevity in that too.

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23:11Melissa Daniels:What I think is really interesting about this conversation and this framing of consumers being more educated about what they're actually buying and what it's actually worth to them is that nowhere in there is it, well, I just want to find the cheapest price and I don't care what it is. And like, there might be some categories that applies to for certain things for some people, but in my experience and even just my own personal shopping habits, like I am willing to pay a little extra for something that I feel like is going to give me a better experience, even if it's something that, you know, I'm on a budget for, you know, and it's like finding that window of I don't want to buy the bottom of the barrel, but I don't want to break my bank.

23:54A hundred percent. And this is a conversation we have with clients to the premium versus value. So right now, when you look at K-shape or like highly discretionary versus, you know more commoditized categories and all of that like the premium versus value discussion one of the challenges that i see is that brands brands chase like a cheap price and they strip out quality like people are literally only looking at price alone and that's just not only is that not accurate it's kind of disrespectful too to consumers like people are looking to spend their money in the right way. They're not there. They don't want to buy something that's bad quality.

24:34And so that's a lot of what we're talking about, too, is like be really thoughtful about cheap, right? Really thoughtful. You know, a good example this week of that is Spirit Airlines. Spirit Airlines was cheap. And like pretty much that was their, you know, that was their entire strategy. And eventually like that just doesn't hold up. Like whether it's that they got price matched on some big routes from some of the normal players who kind of, you know, broke apart the way they're, um, the way they priced out their product. Like it's, it's people, you know, deserve like enough, like respect that it's not about price alone.

25:16It's not always about like, There's always going to be thresholds, but yeah, I always bristle a little bit when it's like, feels like the goal is cheap. I guess I just wanted to follow up a little bit on the price value equation and talk about being priced out, quote unquote. You hear this from consumers now, whether it is in the luxury handbag space or like a premium food. I mean, I talk a lot to food and beverage brands and it's like, I mean, the norm now is like a$10 ice cream pint. And it's like, do I need the ice cream? Sometimes I'm asking myself or, you know, am I going to trade down to private label or yeah, maybe just have it more be that occasional tree versus like the weekly, you know, car ads.