Brief Overview:

  • According to a report released Tuesday by EY-Parthenon,Consumer Sentiment Survey, nearly two-thirds of consumers believe a recession is likely.
  • EY-Parthenon data shows consumer financial confidence has dropped 12% over the past six months. Consumers are responding by reallocating budgets and reducing discretionary spending.
  • "What we're seeing is just another turn of the ratchet effect, reflecting a long-term trend of declining economic security," Will Auchincloss, EY-Parthenon's Americas retail leader, told CX Dive.

Deep Dive:

EY's latest survey results show consumer sentiment continues to decline amid rising costs. Consumers are becoming more selective in their spending, intensifying competition among brands.

The latest data from the U.S. Bureau of Labor Statistics'Consumer Price Indexshows significant price increases—up 4.2% over the 12 months through May, with energy prices contributing more than 60% of the monthly CPI increase.

To offset the impact of rising oil prices, nearly a third of consumers say they are reassessing their entertainment budgets, 29% are adjusting food budgets, and another quarter are changing travel plans.

"What you're seeing in shopping behavior is that they're switching categories and channels to save money. With summer vacations approaching, we expect spending this year to be more subdued than in previous years as these effects take hold," Auchincloss said.

For example, Auchincloss noted that consumers often reduce dining out and instead increase grocery spending, choosing to eat at home.

Auchincloss said consumers will not tolerate price increases without corresponding value, and many brands have hit a ceiling when it comes to raising prices without losing customers.

"They want brands to be on their side, authentic, affordable, and delivering value. Retailers that do that are succeeding in the market," Auchincloss said.

With such intense competition, brands must demonstrate their value and remind customers why they chose the brand in the first place.

"Data over the years has consistently shown that focusing on existing customers is always cheaper than acquiring new ones," Auchincloss said. "A big area we've been focusing on with one client is reactivating dormant customers—those who came before but churned. We see this as a huge opportunity for the entire industry."

However, there are also opportunities to acquire new customers as consumers reassess their spending.

"This creates opportunities for retailers that act smartly and strategically, because consumers are not locked in," Auchincloss said.