Throughout 2023 the question keeps coming up: “Are we in a recession?.” The answer really depends on who you ask.
Ask the government and it will say no. We haven’t had two consecutive quarters of negative GDP, the technical definition of a recession. It will also tell us that the job market is so very healthy that we can’t be in a recession. According to the “Jolt Report,” which measures the number of job seekers compared to the number of jobs available, we are holding fairly steady at just less than two jobs available for every one worker looking. If that is true, why are so many people out of work or struggling to find work? Perhaps not everyone wants to lower their pay grade or trade over from their skill set to work. Not everyone wants to work in a job they are overqualified for, either.
Ask consumers if we are in a recession. They will say that we may not be in one technically as they haven’t been told so by the government or the media, but they will tell you we are making “concessions” in spending. Higher prices across almost all industries have made it hard to stretch the dollar as far as in previous years.
With food prices running at close to 18% higher than two years ago according to Circana research and not showing signs of letting up, the consumer must continue to make decisions on how to save. Some opt for lower-priced products (trading down from premium) or choose generic brands.
We are even seeing people opt for fast food meals rather than home-cooked meals which in some cases are more expensive. We are also seeing people buy fewer products — they may not be stocking up and filling the pantry to save on spending. They’re buying what they need, when they need it.
Ask manufacturers if we are in a recession, and they will tell you that it sure feels like one. They are making decisions and product offerings with an eye on “digression.” They are clearly still recovering from the supply shortage of the pandemic and are wrestling with the loss of new and innovative products. Many manufacturers blame the latter on the lack of collaboration during the pandemic along with the lack of appetite from retailers for new products as they chased the tried-and-true products to avoid risk.
Whatever the reason, it is imperative that manufacturers get back on the fast track to offer new and exciting products to the consumer. Otherwise, we will continue to see lackluster desire from consumers as they wait for products to need to be replenished rather than updated. After all, if a consumer can avoid spending on an item, they will likely opt to do so right now. But if the product excites them, and makes them feel what they have is obsolete, they will likely opt to purchase.
We have bored the consumer to death or, more accurately, to avoidance. Manufacturers are either still wrestling with too much product as sales slow or with the challenges of playing catch-up with supply challenges three years after the huge crunch in 2020. Inventories are still in a state of “digression.”
Ask a retailer and they will tell you we are in a “compression.” Retailers are fighting to maintain their slice of the pie, but the pie is shrinking. And with very few retailers going away, we are seeing that smaller pie yield smaller pieces to the same number of retailers.
As we navigate our way through the balance of 2023 into 2024, look for some compression at retail to begin. It will be tougher for retailers to keep all stores open. Poor performers will once again be weeded out by location and stores will close. Poorly performing chains will be hard-pressed to remain in business and we will see the closing of chains.
We will also see the compression of brands within stores. As retailers elevate their focus on value for the consumer, we will see more emphasis on private brands, and since physical stores can’t expand to carry more brands, we are likely to see a compression of brands to make room for private brands. More reliance on brand expansion will come from online offerings, which in turn will put more pressure on stores to perform to justify their expenses. The “compression cycle” will continue to change the retail landscape as we navigate through this financially challenged period.
Ask the media if we are in a recession, and they will continue to demonstrate that they are in a “recession obsession”. Back in 2008 when the recession was declared to be official, the media pounded away at it. Consumers didn’t pull back from spending until 2009 when the press scared the consumer into action. The media is about to embark on a new wave of “obsession” as we enter the presidential election year and the economy will be front and center. We will certainly see and hear a lot about how prices are higher and jobs are tougher to come by; the consumer will both be distracted and nervous. Spending will be challenging for many sectors.
As consumers, we are buying less in most categories. Prices are higher, deals are lower than in years past and products are getting more sophisticated and expensive, leading to a slowdown in consumption. How the markets respond to these pressures will be the true test of whether we are in a recession or not.
Remaining focused on your customer has never been more important — what they need or want and when they want it all play a huge role in the demand for products today. Focusing in on your retailer partnerships has become so important — it is not as simple as selling them products and waiting for more. Everyone must be focused on enticing and educating the consumer as to why they need to buy. Everyone needs to excite the consumers back into desire.
Replenishment may maintain, but it won’t grow anyone’s business. Bring new and exciting products to the forefront — it can be through innovation of product, newness of color or flavor. It can even be through the usage of products. Just look at how the younger generation has transformed the slipper business as they wear them as street shoes—a new use for a new generation. Innovation comes in many forms.
Now go innovate!