When consumers feel more confident about their own financial situation and about the economy they tend to be more optimistic and spend more. However, in recent times consumers are not feeling optimistic, as tracked by the GfK consumer confidence monthly report. With additional external factors like inflation and Brexit, will this impact consumer confidence further and what will retailers need to do to reduce the impact to them?
Why does it matter?
Consumer confidence is an indicator for businesses and economists to understand how consumers are feeling in current economic climates. It should give a good indication on what consumers feel and what their potential spending plans are, when it comes to making major purchases. This is important for retailers and manufactures to track, as this can affect profits and help with understanding a consumer’s outlook.
The latest GfK consumer confidence index for October remains negative and decreasing from -9 to -10, which suggests consumes are ready to further scale back their spending. The GfK consumer confidence study (see table below) found that 65% of consumers that were asked, believe that prices either will have a rapid increase or will increase at the current rate in the next 12 months. This could mean that consumers decide to buy now rather than waiting for price increases, especially with the uncertainty surrounding Brexit.
What affect does it have on pricing goods?
With low consumer confidence and the majority of consumers think prices will rise, retailers and manufacturers need to act to entice consumers to continue spending. As both need to make sure they sustain or increase demand levels with their pricing and promotions, otherwise they could see profits fall.
We are already seeing some action, with retailers’ pricing on 43-55 inch TV’s dropping by 18% in the past 12 months – and 10% over the last 3 months.