The United States is an economy driven by consumer spending. In fact, those purchases account for almost 70 percent of the annual U.S. GDP.
Whether or not a brand sells directly to end users, what happens on the consumer side of the economy… serves as a “barometer” for the health of the entire financial system. It not only offers valuable insights about inventory levels and supply chain friction, but — most importantly — it acts as a guide to what the future may bring.
A survey of recent earnings reports — combined with new government data — clearly demonstrates that shoppers are still spending. Of course, they’re feeling the pinch, especially when it comes to core commodities like food and gasoline.
The Consumer Confidence Index has even begun to edge higher from its June lows, as fuel prices have moderated. At the end of August, the index stood at 103.2, up from 95.3 in July.
How consumers view the economy is an important measure… as audiences are more likely to spend, when they feel economically stable.
Some surprises from big box retailers
Just weeks after executives from Target and Walmart announced they were slashing forecasts, the retail giants delivered some positive surprises in their second quarter financial reports.
Historically, these quarterly reports are viewed on Wall Street as foundational economic indicators. We urge caution… as better confidence can be found elsewhere, amid these choppy waters.
After all, these types of retailers loaded up on — what turned out to be the wrong type of inventory during the pandemic — and were left trying to shed the excess by slashing prices, as the population’s habits eventually shifted.
Let’s not make the same mistakes.
Starbucks and Williams-Sonoma buck the trend
Consider instead, that Starbucks actually reported better-than-expected quarterly earnings and revenue, fueled by strong demand in the U.S. for its cold brewed coffee drinks. How could that be?
As inflation began to surge, Starbucks’ visionary leader Howard Schultz reminded us that his brand wasn’t experiencing customers trading down. Or reducing their spending. Rather, he credited Starbucks’ pricing power — and customer loyalty — for the brand’s ability to rise.
Similarly, Williams-Sonoma is thriving. In its late August earnings release, the company reported, “We are reiterating our fiscal year 2022 and long-term financial outlook of mid-to-high single-digit annual net revenue growth, increasing revenues.”
The ebb and flow
It’s easy to become fearful when the media is full of the-sky-is-falling news. But anyone who’s been around long enough knows that economies operate in cycles. Our agency’s roots began in 1987… when Black Monday brought a global, sudden and largely unexpected stock market crash. The largest one-day drop by percentage in the index’s history.
What we’ve learned is to build advantages and add value to each of our client’s brand promises… helping them to grow long-term brand equity. That pays dividends and helps them get through the lean times. Starbucks knows this well.
What’s going to happen in next week’s Federal Reserve report? Or the next six months, the next year, the next two years? It’s impossible to have impeccable certainty.
It’s also important to remember that downturns are as much psychological as they are economic. When enough people retreat, the economy resets, sometimes painfully.
Yet, fortunately, there appears to be enough signs of light on the current horizon.
Other indicators worth noting
The labor market continues to show strong growth. In August, employers added 315,000 jobs — despite pressures from inflation and supply chain problems — marking a 20-month streak of increasing numbers. And, according to the Bureau of Labor Statistics, the unemployment rate now stands at 3.7 percent.
Homes selling at asking price continues, as rental rates offer little solace… though some luxury homes are beginning to moderate. For the $1 million-plus market in the Southeast, the average sales price is $1.6 million, a 4.8 percent increase from $1.5 million in 2021.
Despite that, the housing market is becoming more balanced… but at great cost. Buyers are experiencing higher mortgage payments. And the upper hand of sellers is growing weaker, as mortgage rates have doubled this year and continue on an upward climb.
There were 2.9 months of home supply available during the four weeks ending September 11, up from one month a year ago and the highest level since June 2020.
Other indicators, however, show that homeowners are still spending.
“Residential kitchen and bath spending is anticipated to grow by 16 percent to $189 billion in 2022,” reports Bill Darcy, CEO of the National Kitchen and Bath Association (NKBA) in the organization’s recent midyear analysis.
Economic conditions are in flux — and all of it bears careful watching.
How nimble organizations can navigate economic uncertainty
Following are eight ways to ride the wave of the current economic situation.
Be a category of one. Starbucks and Williams-Sonoma maintain those surprising earning reports because they continue to promise something greater than mere brewed coffee or better housewares. Starbucks offers a product that’s desirable, affordable… and that comes with a unique experience. Williams-Sonoma packages together aspirational kitchen conveniences and housewares, and — again — conveys an image of a well-lived life.
It’s those images of a Café Macchiato with an extra shot of espresso for five dollars — or of setting a table as gracious as anything the Barefoot Contessa can pull off — that brings audiences back. Season after season.
Keep an eye on the budget. It’s crucial not only to adhere to strict cost controls, but to regularly re-evaluate opportunities to maximize investments in marketing. The old adage holds true for businesses — as much as for households. Make sure to save money for a rainy day. Or perhaps for a collaboration with a motivated A&D blogger, with high social media influence.
Cut back where you can. Recession planning should include seeking a variety of ways to lower expenses. But make sure to resist the temptation to reduce the value of hard-fought and well-earned brand equity.
Build up your emergency fund. Just as financial experts advise individuals to keep three to six months’ worth of expenses in case of an unforeseen event, so too should building product brands establish contingency funds and plans.
Look for ways to expand. This may seem counterintuitive, but an economic downturn can be an advantageous time to grow a brand through the addition of new types of services. Or added value that will appeal to an existing client base. While attracting prospects who are evaluating their current product mix.
Fill your pool. Generating sales and marketing leads is at the heart of growing any business… which takes on new importance during volatile economic cycles. Build your prospect pipeline by seeking referrals, conducting social media or email campaigns, and creating lead-generating content marketing.
Plan for the long term. It can be difficult to see the forest for the trees when day-to-day management of a business takes precedence. That makes it all-the-more crucial to have plans in place long before potential storm clouds form.
Help build skills. Invest in your forward-facing troops — and not just during a business slowdown — by helping them to grow their skills. Software training, skills certifications and virtual learning courses are great ways to begin the process. When employees feel valued — and are elevated to learn and apply new skills — the brand can benefit greatly.
Economic uncertainties are an inevitable part of business cycles. Businesses that put in place preemptive measures are much more likely to find themselves in stronger positions. Now and in the future.
Interested in better aligning your sales and marketing efforts as the economic winds continue to shift? Send an e-mail to sk@kleberandassociates.com to get the conversation started.
