Unveiling the Ripple Effects: How Inflation is Reshaping US Consumer Landscape

The outbreak of the Ukraine War disrupted the United States' path to economic recovery from the COVID-19 pandemic. This global conflict caused supply chain disruptions in various industries. As a result, it increased energy and manufacturing costs that impacted consumers' budgets. It also caused a decline in digital spending and changes in consumer behavior.

According to a report by Similarweb, there has been a 6% decrease year-over-year in desktop Converted Visits for the top 2251 e-commerce websites across different industries. McKinsey's recent findings support this. It indicates a drop in consumer spending for the second consecutive month in May 2023 compared to the previous year. Furthermore, a survey of 2,507 participants found that 43% of customers are saving less money than the previous year. At the same time, 87% of them blame inflation for this decrease in extra spending money.

Generational differences have become more evident during this time of inflation. Younger consumers, particularly those in the Gen Z age group, have been less affected by the cost of living crisis. This is attributed to many factors. These include smaller households and living with their parents to save on rental expenses.

In contrast, price hikes have had a higher effect on older individuals. It is because they tend to have larger households of three or more people. Survey results show that 46% of Gen Z Americans reported having more disposable earnings than the previous year. In comparison, only 27% of consumers aged 55 and above have reported the same.

Various industries have seen changes in consumer behavior amid inflation. Fashion retailers, auto parts suppliers, and cosmetics and beauty retailers have experienced an increase in Converted Visits year over year. The increase in auto parts purchases indicates that consumers seek to reduce repair expenses by performing the work themselves.

But, fashion brands have seen a decline in brand loyalty even after increased consumer purchases from fashion retailers. This highlights the necessity of establishing brand loyalty programs to draw and keep customers.

Furthermore, the travel and experiences sectors also witnessed a growth in Converted Visits year over year. Tours significantly increased by 62%, while cruises and tickets/events saw respective increases of 23% and 8%.

In contrast, industries such as meal kits, restaurants, and food delivery services have faced a significant decline in Converted Visits due to rising food prices. Similarly, financial services and consumer electronics have experienced a drop in consumer interest.

Despite the challenges, opportunities still exist in the market. Direct-to-consumer (DTC) channels have obtained positive feedback, with high-tech appliance DTC sites surpassing the market in the consumer electronics sector. Athletic apparel brands have witnessed a decrease in Converted Visits by 35% YoY but have seen growth in their DTC sites by 27%.

Consumers have also adopted strategies such as exploring inexpensive alternatives or convenient financing options to deal with the rising cost of living.

A new trend among Gen Z consumers involves seeking out inexpensive copies or dupes of well-known and often pricey items. This trend has gained momentum on TikTok, where young Americans share their experiences. As of early May 2023, the hashtag #dupes on TikTok generated over 2.5 billion impressions. This contributed to a 9% year-over-year increase in traffic to the top 100 beauty industry websites.

Additionally, consumers are becoming more accepting of retailers' private label brands, which are cheaper than national brands. Recognizing this opportunity, Amazon has launched its range of private-label brands in various categories.

Despite rising living costs, the "Buy Now, Pay Later" trend has gained popularity among US consumers. Visits to airlines' "BNPL" departments have increased by 64% year over year. This shows a strong desire of US consumers to keep traveling with flexible payment options.

Questions continue to linger about a possible recession in the US. The future success of e-commerce industries relies on their capability to recognize and take advantage of new trends. It is crucial to understand customer behavior and know opportunities are still available.

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