Rising Food Costs Temper Retail Spending

Rising living costs — specifically for food and other packaged goods — are dragging on consumer retail spending, as year-over-year general merchandise sales revenue fell by 14% decline in the first week of November.

“The growing weekly grocery costs and monthly credit card bills have begun to chip away at discretionary purchases,” said Marshal Cohen, chief retail industry advisor for NPD. “Consumers can only absorb climbing expenses for so long before they begin to reassess their spending capacity.”

NPD points to rising food and beverage costs and increased spending on consumer-packaged goods in particular, noting that ”the shift toward consumer spending on food in general is now affecting spending in other areas.” Recent research from CBRE projects a 6.9% increase in Q4 retail sales year-over-year to $1.48 trillion, however, and experts are roundly predicting an earlier-than-normal start to the holiday shopping season.  However, costs are predicted to be higher, of course, as the Consumer Price Index continues to tick up.

“Last year, inventory was so low that retailers were not in any position to offer consumers special markdowns. The retail industry saw high demand for merchandise at all levels and low inventory,” Dave Cheatham, president, X Team Retail Advisors and Velocity Retail Group, told GlobeSt in an earlier interview. “This year is flipped. Retailers will have a better level of inventory versus last year’s supply chain drought. However, the consumer may fill their shopping list with needs and staples for the family, rather than wants and aspirational luxury items.”

NPD says lower demand is being driven by the fact that many consumer needs are still being satisfied by purchases made during the pandemic, and many retailers are engaging in severe discounting to offload stockpiled inventory.

“Rising interest rates and other aspects of the economy are affecting consumer confidence, and the lack of new product is impairing their need and desire to spend,” Cohen said. “Over the holidays and into the new year, consumers will be looking for exclusive product offerings, uniquely compelling benefits, and promotions that break through the noise and create a sense of urgency to make the purchase.”