This is an excerpt from Cart.com’s newest eBook “2024 State of the retail consumer,” an in-depth look at the consumer mindset, spending, trends, behaviors, desires and more – and best practices and strategies to engage customers. Check out the full eBook here.
Consumers speak and retailers listen: It’s how it has always been. Outside influences, innovations and shifts in attitudes and cultural norms result in new behaviors, preferences, retail dynamics and novel trends.
In 2023, technology continued to advance rapidly, the economy started to settle, and with a glimmer of cautious optimism, consumers showed financial resilience but favored experiences – dining out, vacations and events – over goods.1 However, a stellar holiday peak season showcased strong spending, breathing new life into the retail industry as it transitioned into 2024. US Census Bureau data showed that 2023 holiday sales grew 3.8% to reach a record $964.4 billion.2 The BFCM period also saw record numbers, with online ecommerce sales up 7.8% from the previous year.3
Retail consumer finances and feelings
Since the start of the pandemic almost four years ago and the following economic instability, consumers have started feeling more confident than they have in two years – and outlooks are at the highest level since 2021.4 Fears of a recession have faded, and consumer sentiment is soaring with positive outlooks regarding inflation, business conditions and personal finance.5 Moreover, consumer sentiment saw the highest two-month leap since 1991 and has risen 60% above June 2022’s low. The improved sentiment spanned income, education, geography and political identification.6
Finances
Low- and middle-income households saw wage gains over the past year, increasing household purchasing power. According to the US Treasury, in 2023, the median American worker could afford the same goods and services as they did in 2019, plus an additional $1,000 to spend or save since median earnings rose faster than prices.7 Consumers have also shown a willingness to spend on higher-priced items. During 2023, spending was stronger in older generations than in Millennials and Gen Z.
Feelings
Even with the positive outlook, respondents of a recent Bank of America survey planned to approach spending with caution to achieve financial goals.8 Consumers intended to cut spending, particularly on experiences such as dining out and social events. These feelings are likely the result of the cost of services rising faster than the cost of goods. Respondents were also looking to pay down credit cards and increase savings. Although there is an increased focus on personal finances and budgeting, the strong economic finish in 2023 signifies that consumers will continue to have the confidence to keep spending freely.
Economic outlook for 2024
The economy exceeded expectations in 2023, with solid consumer spending backed by steady job growth and growing real wages.9 Unemployment stayed low even as inflation fell. Part of the decelerated inflation was due to the healing of the global supply chain. Combined with the other factors, it helped significantly lower inflation. Retail and ecommerce businesses are now looking to 2024 and what to expect.
The top predictions are:
- Inflation will continue to decrease: Initial inflation decline stalled in mid-2023. However, disinflation has resumed and is expected to continue in 2024. S&P Global Market Intelligence analysts forecast annual global consumer price inflation at 4.7% in 2024, down from an estimated 5.6% in 2023 and a peak of 7.6% in 2022. Lower consumer price inflation rates in 2024 compared with 2023 are forecast across most regions.10
- The labor market will remain strong: The labor market has cooled, and rounds of layoffs are still occurring. But the U.S. unemployment rate is still low – and the more extended outlook still looks strong.11
- Economic growth is likely to decelerate: The economy still faces some headwinds, and economists predict that consumer spending will continue to grow at a muted rate.12
- Consumer spending will slow (but stay positive): As consumers experience diminished excess savings, lower savings rates, plateaued earnings and less post-pandemic pent-up demand, spending will slow. Household budgets will still look healthy but restarted student loan payments and credit card balances will factor into spending habits.13
- The political climate will affect the economy: While the election year might not have an effect early on, things could take a turn at the end of the year. Any policy changes or political shakeups – both nationally and globally – could influence the economy.
The impact of the economy on consumer behavior
The economy plays a crucial role in shaping consumer behavior. It influences purchasing decisions, saving habits and overall spending patterns. During times of economic prosperity, consumers tend to exhibit confidence and may increase discretionary spending on non-essential items. Economic downturns often lead to cautious spending. Consumers tend to prioritize essential purchases and seek value-oriented options.
The biggest factors influencing the economy and spending are unemployment rates, inflation and consumer sentiment. These can significantly impact consumer behavior, prompting retailers to adapt their strategies to meet evolving needs and preferences in the marketplace. It’s critical for brands to understand the intricate relationship between the economy and consumer – otherwise it’s impossible to stay competitive. But how will 2024’s economy affect consumer behavior?
Brick-and-mortar stores: Are they making a comeback – or not?
In the aftermath of the pandemic, brick-and-mortar stores began to make a comeback. And it wasn’t just about getting out and socializing – but spending money as well. In 2023, Black Friday weekend retail store traffic was up 1.5% from the previous year, with 118.8 million people spending money in-store.14
Ecommerce often wins out for convenience. You can shop, purchase and receive your item all within the comfort of your own home. However, customers appreciate the customer service and experience they receive in a physical store, and retailers look to improve on that. Even with the simplicity of ecommerce, brands aim to lure customers back into physical spaces by creating dynamic experience centers. They’re also offering different kinds of convenience, such as innovative payments, personalization at scale and BORIS (buy online, return in-store), BOPIS (buy online, pickup in-store) and BOPAC (buy online, pickup at curbside). Brands also use stores as a physical continuum of the digital shopping journey. They’re working to effortlessly connect the two and use the physical realm to complete the journey.
Many experts feel that brick-and-mortar retail is not going the way of video stores. In fact, quite the opposite. Retailers see it as another opportunity to innovate, extend and enhance the customer experience and a valid channel in their omnichannel commerce approach.
Ecommerce spending
Consumers are planning to spend more online in 2024. In a recent survey, 42% of respondents said they plan to spend more online over the next 12 months.15 The top online shopping features that drove respondent purchases were low prices, shipping time and cost, selection and a user-friendly interface.
Worldwide ecommerce revenue is expected to show an annual growth rate (CAGR 2024-2028) of 9.83% and projected to reach US$3,647 billion in 2024.16 Strong growth is good news for retailers – giving them the potential to expand market reach, increase sales opportunities and enhance customer engagement. By leveraging ecommerce channels, retailers can tap into global markets, reaching customers beyond geographical boundaries and traditional brick-and-mortar footprints. Additionally, ecommerce enables retailers to deliver personalized shopping experiences, optimize operational efficiency and adapt to evolving consumer preferences, driving overall business growth and success.
The economy and customer loyalty
When the economy isn’t strong, customers are willing to switch brands more easily. This is both a positive and negative – it gives retailers an opportunity to attract new customers but also makes it harder to retain them. Brands should aim to build a loyal customer base. This base has a greater likelihood of repeat purchases. More importantly, when attracting new customers is more of a challenge – when spending slows, or there’s lingering inflation – these customers also help businesses weather the storm. A customer base can also become advocates, attracting new leads through positive word-of-mouth, which helps when marketing budgets are lean. Growing a loyal base requires active participation, feedback and positive encounters – making it vital to build connections and design exceptional customer experiences.
2024 sets a promising stage for retailers to thrive given current consumer sentiment. As the economy continues to recover, consumers are regaining confidence and demonstrating a willingness to spend, particularly online. This surge in consumer activity bodes well for brands – as long as they implement strategies that tap into growing demand and heightened purchasing power. However, they must also factor in the segment of customers who plan to cut spending on non-essential and delayable items.17 Strategies will be more effective if they utilize the expanding number of ecommerce channels to reach and engage with customers, and foster long-term growth, loyalty and sustainability.
Want to learn more? Check out the rest of our eBook about the current state of the 2024 retail consumer – along with strategies and best practices to amplify your customer experience.
