Consumer spending and economic activity has ups and downs not unlike that of a roller coaster, and the last several years have shown a drastic increase in consumer spending activity. In the immediate aftermath of the 2020 pandemic, consumers began spending a lot of money, which increased price inflation. It wasn’t just the consumer demand, but also the struggling supply chain factors that lead to drastic price inflation over the coming years and major shifts to the U.S. buying market.
However, the last several weeks have been indicative of a market “180 turn,” as industry experts are preparing for a significant drop in consumer demand. In the post-pandemic era where consumers have burned through their pandemic savings, unemployment pay, and stimulus checks, we are seeing an all-time high for credit card debt and an increase in cautionary spending among buyers.
Major Business Take a Hit
General Mills is one of several large companies that are seeing a major shift in consumer buying activity over the last several months, with reports in recent weeks solidifying their suspicions. At the end of May, General Mills experienced a significant 6% decline in sales in the first quarter of 2023. On the purchasing side of things, several U.S. retailers have been pairing down their inventories in order to offset working capital. Officials at General Mills have alluded to a significant increase in demand elasticity over the last several weeks.
Despite the only 6% decrease in sales in the first quarter, their overall cash flow has decreased by a surprising 16%, which has subsequently affected the companies stock price. The company doesn’t seem particularly concerned, as the drop in sales has returned them to pre-pandemic sales levels. General Mills has forecasted a year of softer sales in 2024. Part of this is attributed to consumer demand which is expected to be lower, but also in addition to rising inflation nearing 5%. If inflation rises, it will force GM and other companies to raise prices amidst an already decreasing consumer demand market, which will overall lead to a potentially drastic decrease in sales.
Consumer concerns over spending behavior have lead more and more U.S. residents to resort to cheaper “off-brand” purchases. So while demand has been low across the board, it has hit major name brands harder than the rest.
It’s not entirely certain just exactly where consumer demand will head in the next quarter, but most industry experts are forecasting further decreases in demand, as well as more volatility in behavior across the board.
As a result, most large retailers are destocking and ridding themselves of excess inventory while being more selective of their purchases to mitigate the risks associated with a softer forecasted sales season in Q2.
To further reduce risks and maximize profitability, many large retailers are investing in software to help with demand planning. This would allow companies to stock their goods based on accurate forecasts of consumer demand and buying patterns amidst a volatile market.
In summary, adaptability is the name of the game for U.S. retailers in the coming months. Ensuring accuracy of sales forecasts is crucial to the entirety of retailers’ supply chains, as misgauging consumer demand can lead to overstocked and expensive inventory excess, or to a major product scarcity.