May 9, 2024 - Economy

Consumers trading down to cheaper goods as inflation persists

Illustration of multiple vintage price tag stickers stuck one on top of the other.

Illustration: Aïda Amer/Axios

Call it the big trade down.

Why it matters: Consumers eager to save amid persistently high inflation are increasingly turning to cheaper goods and services.

Between the lines: Low priced items are accounting for a significantly higher share of online unit sales in numerous product categories compared to five years ago, according to Adobe Analytics data released today.

  • In personal care, the share of unit sales coming from the cheapest quartile of goods jumped 96% from January 2019 to April 2024, the firm found.

Similar jumps were seen in:

  • Personal care (+96%)
  • Electronics (+64%)
  • Apparel (+47%)
  • Home/garden (+42%)
  • Furniture / bedding (+42%)
  • Grocery (+33%)

Zoom in: "Within a category like groceries, the data showed that goods with low inflation saw revenue grow by 13.4%, while products with high inflation saw revenue drop by 15.6%," Adobe reported.

The big picture: A slew of companies have noticed the shift, including Amazon, where CEO Andy Jassy noted on an earnings call last week: "Customers are shopping but remain cautious, trading down on price when they can and seeking out deals."

  • Shake Shack CEO Randy Garutti said that some of the restaurant's "lower income" customers are trading down.
  • Darden Restaurants CEO Ricardo Cardenas said the company is tracking "a few signs of some consumers trading down within our brands," including upper-income diners.

And it's even impacting pools. At Latham Group, customers are switching from pricey concrete swimming holes to cheaper fiberglass installs, CEO Scott Rajeski said.

For many people, it's a matter of necessity.

  • "Consumers have been drawing down excess savings since mid-2021, but as of March this year, excess savings dried up," writes LPL Financial chief economist Jeffrey Roach.

Store brands are a big winner — and retailers are responding by boosting their offerings.

  • Perrigo's CFO, Eduardo Guarita Bezerra, said the shift to store brands is helping the generic drug maker.
  • Target launched a new store brand, "dealworthy," focused on everyday items.
  • Walmart recently announced its biggest new store brand launch in 20 years with the "bettergoods" brand focused on affordability and food trends.

The bottom line: Inflation continues to reshape our spending patterns.

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