Stephanie Stuckey is part of a lengthy line of family executives, yet the CEO of convenience store chain Stuckey’s has been leaning on some old advice from her grandfather to get through the current economic environment.
In a LinkedIn post a few weeks ago, Stuckey recounted a relative’s wisdom of the $5 rule.
“My grandfather had a strategy for managing high prices at the pump,” she wrote. “Whenever it cost Stuckey’s customers more than $5 to fill up their tank, that was the tipping point when they started spending less in his stores. So, he’d adjust his inventory to stock up on essentials like snacks and drinks, and buy less novelties. Go figure … folks bought less rubber alligators and snow globes when they had less cash!”
Today, Stuckey’s has adjusted that $5 rule to $100, but the philosophy has remained the same.
“His advice still holds true,” the LinkedIn post continued. “We’re seeing sales for our snack and candy items holding steady — and less demand for our novelties — and are adjusting our inventory accordingly.”
The same changes Stuckey’s is seeing at its convenience stores are also playing out in the e-commerce market as inflation has gripped the economy and shown few signs of slowing down. On Wednesday, the Bureau of Labor Statistics reported that inflation rose 9.1% in June over June 2021. That marked the fastest year-over-year rate since November 1981 and exceeded what analysts expected. Even removing food and energy prices from the equation only cooled the core consumer price index slightly — to a 5.9% rate.
Inflation-adjusted incomes fell 1% in June and are down 3.6% from a year ago, the BLS reported. But inflation is not impacting all areas of the country the same, and that is especially true in the e-commerce and broader retail sectors. While e-commerce is expected to surpass $1 trillion in sales this year with 22.1% of the overall retail market share (excluding cars and gas), it too is feeling the effects of inflation.
Nick Mangiapane, chief marketing officer of Commerce Signals, told Modern Shipper his firm is seeing some shift taking place as a result of inflation. For instance, through the first part of this year, overall retail is up 8.4% in terms of purchase volume, but the average transaction (called a “ticket” by Commerce Signals) was up only 1.2%, even though inflation is driving prices much higher.
“I don’t think broadly that retail is immune to inflation,” Mangiapane said. “I think it is likely that [people are substituting for lower-priced items].”
Commerce Signals collects credit card and debit card transaction data from over 40 million U.S. households. While its data won’t show what people are purchasing, it does indicate how much they are spending. Mangiapane said all commerce channels are up 4.8% in transaction amount, with online transactions up 6.1% and in store 4.6%. That compares to the index, which has been trending up and is now above 9% as reported Wednesday.
“The CPI is trying to compare apples to apples, where I have some amount of mix happening [in our data],” Mangiapane said. “For example, if people eat in more, rather than going out, that is a lower average ticket price.”
In August 2021, the U.S. Census began asking small businesses across the country what they were paying for goods and services as part of its Small Business Pulse Survey. At that time, 29% said they had seen large price increases since March 2020.
The survey asked the business owners if they had encountered large or moderate price increases. The assumption is that businesses are passing along these added costs. By April of this year, 41% of owners said they had experienced large price increases over the previous six months, and another 38% said they had seen moderate increases.
But where is that inflation hitting the worst? NerdWallet dug through the data and found that those in Nebraska (88%), Wisconsin (87%), Arkansas (86%) and South Dakota (86%) had seen the most inflationary-related price increases. In all, the news outlet found 24 states saw at least 80% of their small businesses report price jumps.
A list of the states where small businesses said they had seen the most price increases for goods and services, sorted by net price increase. (Photo: NerdWallet).
In no state did fewer than 67% of the small business population report price increases (large and moderate rises combined), although Delaware (67%) reported the best overall performance. Hawaii, Nevada and West Virginia all came in next at 71%, followed by Virginia (72%), Mississippi (73%); and California, Puerto Rico, Utah and Wyoming (74%)
Among the states with the largest net inflation increase, per NerdWallet, Arkansas also ranked as the worst state per Commerce Signals’ data in terms of average ticket growth year over year with a 3.3% decline in average price. Nebraska, with the largest net inflation increase, saw a 1.8% decline in average ticket, and Kansas, fifth in the NerdWallet study, saw a 1.5% drop.
In all, 17 states in Commerce Signals data showed declines in average ticket prices. But in NerdWallet’s analysis, just three of the top 10 worst states for cost increases also showed a drop in ticket value. Commerce Signals didn’t provide data on two states — Wisconsin and Kentucky — and the remainder of the top 10 showed increases in average ticket price, led by South Dakota’s 3.4% spike.
Mangiapane noted the data suggests consumers are seeking alternative product choices in general retail. The result has been an uneven experience across e-commerce as consumers deal with inflation differently in each state.
Commerce Signals indicated consumers in several states continue to spend more on goods, led by New Hampshire’s 10.9% increase in average ticket price that falls in the middle of the pack in the NerdWallet analysis. South Dakota ranked fourth in the NerdWallet survey, with 51% of small businesses saying goods and services have gone up a moderate amount and another 35% saying costs have risen by a large amount. However, average ticket price has increased 3.4% in South Dakota, Commerce Signals said.
The top 10 states that suffered the largest decline (left) and largest increases (right) in average ticket size year-over-year, according to Commerce Signals data.
The data suggests other factors may be contributing to the uneven sales data, but what those are is difficult to discern.
As retailers adjust to changing consumer spending habits, one area of focus is inventories. Target, Walmart and Amazon are among the large companies that have indicated they have too much inventory on hand.
Nikki Baird, vice president of strategy with retail technology company Aptos, said this shouldn’t have been a surprise.
“What I’ve learned from all of this is that human psychology is still the biggest driver of supply chain: a tendency to project the current situation forward as the most basic way of predicting the future (i.e., if consumers invested a lot in improving their homes over the last two years, they will continue to invest at this rate forever),” Baird said. “Did all the AI optimization that companies have supposedly invested in just miss the behavior shifts as consumers abandoned pandemic practices? Or did humans ignore and override those predictions?”
As inflation has taken hold, this miss has led to additional problems for retailers, Baird noted.
“The whole ‘lifestyle shift’ retailers have been reporting is really disappointing,” she said. “It was easily predictable that when things opened back up, there would be less breadmaking and more eating bread in a restaurant, for example. I realize it wasn’t exactly predictable when that shift would happen, but retailers seemed to have taken an approach of full-bore for pandemic habits until they saw real evidence that the behavior was shifting — and, for inventory management, that’s way too late.”
With inflation at economy-slowing highs and inventory excesses that don’t interest consumers, retailers are now in a bind.
“You can’t stop a supply chain on a dime, as we already learned during the pandemic,” Baird said. “Rather than hedge their bets by investing a little bit more in the things that consumers would shift their purchases to, [retailers] stayed hard on items that have been hot during the pandemic and now have to deal with a pileup of that inventory.”
Jennifer Randall, senior director of marketing for technology company ToolsGroup, said retailers need to determine which forecasting system is the best model for moving forward.
“[Consumer packaged goods] companies have long produced 18-month forecasts so they can run more efficient sourcing and production operations,” Randall said. “With a year-and-a-half timeline, packaging and ingredients can be secured at an optimal price, shipping rates can be better negotiated, and promotions can be better planned and fine-tuned.”
With spending on consumer durables likely to see declines during inflationary times and a shift to substitute lower-priced items — as Commerce Signals’ data trends indicate is happening now — suppliers need to consider the changing data trends.
“The question with inflation as a disruptive event becomes which data should be used — older, pre-inflation estimates or a more recent estimate that might have somewhat unusual consumer behavior due to inflation but better reflects the current demand landscape on the shelf?” Randall said.
The data is clearly indicating a shift is underway — and it is uneven across the country. The question now becomes: What happens next?
“If things are getting more expensive, people don’t have room in their budgets,” Mangiapane said.
Click for more articles by Brian Straight.
Image credit: FreightWaves
The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.
Originally posted here…
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Stephanie Stuckey is part of a lengthy line of family executives, yet the CEO of convenience store chain Stuckey’s has been leaning on some old advice from her grandfather to get through the current economic environment.In a LinkedIn post a few weeks ago, Stuckey recounted a relative’s wisdom of the $5 rule.“My grandfather had a […]