Majority of Consumers Say They Will Decrease Spending Once Tariffs Kick In
It seems U.S. consumers may be just as tariff-ied of added costs and brands and retailers.
New data from e-commerce provider ESW shows that seven in 10 U.S. consumers plan to reduce their spending once President Donald Trump's tariffs take effect. Fionn Uibh-Eachach, vice president of global commercial services at ESW, said he believes that gap is even wider among younger generations.
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'Younger Gen Z and Millennial consumers will be especially price sensitive as they are not as financially prepared to absorb higher prices as older shoppers,' he said.
And indeed, ESW's data shows that Millennials are the most price sensitive group of all; 78 percent said they plan to decrease spending. One-quarter of all U.S. consumers also plans to decrease spending or abstain from buying on Amazon Prime Day this summer, according to data from Akeneo.
And though consumers are finicky, it seems they have a bit of flexibility around single-digit percentage point increases to their goods. But many draw the line at a 10 percent increase. Six in 10 U.S. consumers said they would not absorb a cost increase of 10 percent or more once tariffs kick in.
ESW's data shows that, despite their general caution around spending because of tariffs, about half of consumers would like to see brands and retailers offer free shipping or discounts in exchange for higher prices.
Uibh-Eachach said that's a promising sign for brands and retailers, if they can find the right balance.
'It was great to see that most respondents understand that brands will not be able to absorb all the extra costs and are willing to have options like free shipping and loyalty rewards in exchange for increased prices,' he said.
But it seems, regardless of the benefits they might try to bait consumers with, consumers still want retailers to be transparent about their price hikes. According to software company K-ecommerce's research, only 14 percent of consumers said they feel brands are transparent about their price changes. And Michael Netto, general manager at the company, said that kind of transparency can be make or break for a stressed-out consumer.
'If you're not updating prices in real-time, personalizing the buyer journey, or explaining where your price hikes are coming from, your customers will go somewhere that does,' Netto said.
That sentiment may be particularly true for discretionary categories, including fashion and apparel. ESW's data showed that 61 percent of U.S. consumers plan to decrease the amount they spend on apparel and accessories because of tariffs.
K-ecommerce's data showed that, across categories, 44 percent of U.S. consumers have already shaved down their spending. And while about one-quarter of U.S. consumers reported noticing a significant increase in fashion and apparel prices, Netto said the brands and retailers in the industry are far from off the hook.
'Fashion and apparel live on discretionary spending, and with indicators pointing to that pipeline tightening, brands need to rethink everything from SKU strategy to how they communicate value,' Netto said. 'If you're not updating prices in real-time, personalizing the buyer journey, or explaining where your price hikes are coming from, your customers will go somewhere that does,' Netto said.
Beyond strategies seen and experienced directly by the customer, brands and retailers will likely have to make changes behind the scenes, Uibh-Eachach said, noting that further expansion into diverse geographic markets will be a boon to brands and retailers that can make that happen.
But, in the U.S., companies may have to shift their trade, customs and warehousing strategies to account for consumer price sensitivity, while also remaining conscious about their own margins.
'Various strategies include using existing customs measures, such as drawback or bonded warehousing, alternative fulfillment strategies or B2B2C type of importing arrangements which can reduce brands' embedded duty cost in their supply chain and allow them to remain competitive,' Uibh-Eachach said. 'The retailers and brands that adopt these strategies will be the ones that will remain price competitive and won't have to pass on significant tariff costs to consumers.'
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