A Real Economy publication

2022 consumer goods industry outlook: Summer 2022

May 31, 2022

Consumer goods industry outlook key takeaways

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Companies should enhance customer connectivity by offering price promotions or implementing other consumer engagement programs.

supply chain illustration

Consumer goods companies should continue to evaluate supply chains and explore expanding to other manufacturing hubs to limit the risks associated with future COVID-19 surges and other geopolitical factors.

restaurant illustration

Understanding regional dining, work and travel behaviors will be critical to ensure proper deployment of marketing and sales strategies, especially for businesses most affected by consumer mobility trends, such as those in the fashion and beauty sectors.

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Economics Consumer goods

Companies face uncertain consumer behavior

Consumer goods companies (i.e., apparel, home products and furnishings, beauty and wellness, recreational goods) experienced strong performance in 2021 as consumers, flush with additional discretionary income from government stimulus and wage rate growth, largely spent it on goods. However, as we move toward summer 2022, cracks are forming in consumers’ willingness and ability to purchase goods, especially given the current inflationary environment, with the April 2022 year-over-year consumer price index reaching 8.3%. Consumer goods companies—namely those in the middle market—will need to manage an evolving economic landscape that is different from 2021 and driven by shifting consumer preferences, waning consumer demand, supply chain challenges, regional mobility, and environmental, social and corporate governance considerations.

Consumer spending

Since the start of the pandemic, goods purchases have accounted for 34% of wallet share on average, compared with the five-year pre-pandemic average of 31%. Similarly, spending on services has accounted for an average of 66% of consumer wallet share, down from the 69% five-year pre-pandemic average.

Goods vs. services split chart | Consumer goods

This shift in consumers’ wallet share, combined with their additional discretionary dollars, drove consumer goods companies to record performances in 2021. Companies focused on apparel and home furnishings saw a surge in consumer wallet share to 3% for both segments in the 12-month period ended February 2022, compared with a monthly average of 2.5% and 2.8%, respectively, in 2019. Further, based on more recent spending data from the IRI CPG Demand Index, consumers have continued to pull back on many nonessential purchases in April 2022, as reflected in reduced demand in nearly all nonedible categories at the time of this writing.

In recent months, as state COVID-19 restrictions have relaxed and federal mask mandates for domestic travel are no longer required—subject to pending court rulings—consumer spending on services has returned to pre-pandemic volumes. While wallet share continues to tilt toward goods, as inflation forces consumers to spend a larger percentage of monthly budgets on fixed costs (i.e., grocery, rent, energy), they are likely to rethink how to spend discretionary dollars through the remainder of the year. 

Low- and middle-income spending chart | Consumer goods

Inflationary impact on consumer spending varies by income level. As inflation continues above the Federal Reserve’s 2% target rate, the most affected will be low- and middle-income earners who no longer have government stimulus checks to help ease the impact of price pressures. Based on data of Facteus, an alternative data company, gas station spending increased more than 10% on a year-over-year basis in March and April 2022, while grocery spending increased over 10% in March and remained flat in April, indicating consumers may be buying lower-cost products to stretch budgets.

Over the same period, spending on discretionary goods dropped by more than 25%. While a portion of this decline can be attributed to elevated spending in March and April 2021 from government stimulus checks released at that time, the increase in gas and grocery spending is notable. The impact of inflation was also reflected in March 2022 sales data from the U.S. Census Bureau, which showed a consecutive two-month decline in retail, excluding food service, gas, building materials and motor vehicle dealers.

As consumers’ spending habits continue to be shaped by inflation and the transition to a post-pandemic economy, consumer goods companies, especially those in the middle market, need to lean into advanced data analytics to drive growth. Accurate sales data is key for companies to forecast consumer needs and manage cash flows into the future.

Rising inventory with waning spending

Driven by consumer spending in 2021 as well as concerns that supply chain challenges would affect inventory availability during peak shopping seasons, companies increased inventory levels for the winter 2021 holiday season and into early 2022. In March 2022 the combined wholesale inventories for furniture and furnishings and apparel reached $53.9 billion, the highest value in the last 20 years and a 33.6% increase from March 2021. While a portion of this can be attributed to inflation, the year-over-year increase is in excess of inflation growth. 

Wholesale inventory and wallet share spending chart | Consumer goods

Since the start of the pandemic in March 2020, as consumer spending grew, the percentage of wallet share used on furnishings and durable household equipment, clothing and footwear, and recreational items also grew, reversing a multiyear downward trend. Companies should plan for a return to historical trends as inflation drives consumer spending downward, as evidenced by the University of Michigan’s recent consumer sentiment survey that showed 40% of consumers view this as a bad time to make large durable household purchases.

Luxury goods companies and those that cater to upper income levels will likely continue to  unload inventory as those customers’ bases are in a strong financial position to absorb price increases. However, in the event consumer spending does taper across income levels, consumer goods companies will need to evaluate inventory levels and planned procurement for the remainder of the year, to ensure inventory levels are appropriate for the expected lower demand. Additionally, companies will need to give consumers a reason to use a smaller pool of discretionary dollars on their products by enhancing customer connectivity, offering price promotions or implementing other consumer engagement programs.

Supply chain

Concerns about the global supply chain have continued through 2022 for consumer goods companies, even as recent oceanic freight rates per 40-foot container have declined to below $8,000 for the first time since May 2021. As of April, the rate per 40-foot container fell to $7,768, a 23% decline from the September 2021 peak of $10,360, but still well above the 2019 average of $1,405. 

Consumer goods imports and oceanic freight rates chart | Consumer goods

Even as COVID-19 cases impact China and other Asian countries, so far consumer goods companies have demonstrated the ability to import the necessary goods to meet consumer demand. April 2022 imports reached the highest level since October 2021, and increased 8% from April 2021 on the basis of 40-foot equivalent units (FEUs) of cargo capacity.

Any delays or price surges resulting from COVID-19 lockdowns at production facilities in Asia will begin to affect the U.S. market in the coming weeks and months. However, consumer goods companies should continue to evaluate supply chains and explore expanding to other manufacturing hubs to limit the risks associated with future COVID-19 surges and other geopolitical factors.

ESG concerns

As consumer goods companies adapt to shifting consumer preferences, one area of focus should be ESG. Consumers, led by Generation Z, are speaking more with their dollars, and rewarding companies with ESG-focused initiatives. Public filers are taking note, with more companies discussing ESG strategies in public filings than at any time in the last five years. 

ESG mentions in public filings chart | Consumer goods

Further, government legislation will drive companies to adopt ESG-focused initiatives. In New York, the state assembly has introduced the Fashion Sustainability and Social Accountability Act, which requires supply chain mapping and reporting requirements for apparel companies with revenues in excess of $100 million globally. Additionally, in March 2022, the Securities and Exchange Commission proposed a rule to “require registrants to include certain climate-related disclosures in their registration statements and periodic reports.” While the SEC’s rules would not directly affect nonpublic companies, those in the middle market should review the rules to afford consumers a level of transparency similar to what public filers provide.

Finally, beauty and cosmetics companies should continue to evaluate banned raw material lists by state and/or country. As governments continually evaluate materials permitted for use in end products, product formulas could be affected.

By leaning into ESG initiatives, consumer goods companies can better position themselves as leaders in the space and drive sales volume. Additionally, companies known for ESG-focused products can further justify higher pricing, as many natural and organic products are viewed as premium products by consumers.

Regional movement

While consumers nationwide are leaving their homes to dine out, travel and attend events more frequently, regional data tells a different story. For instance, based on data compiled by Open Table, while seated diners in April 2022 reached nearly 100% of 2019 levels across the country, in New York they trailed 2019 levels by nearly 40%, while in Florida they exceeded 2019 levels by more than 120%.

Further, even as companies adopt hybrid work plans for employees, regional data shows a wide range of individuals returning to the office. Nationally, return-to-work levels approached 45% of the 2019 baseline in April 2022, while in New York City and Austin, Texas, the numbers reached 37% and 62% of 2019 levels, respectively.

For consumer goods companies, understanding regional dining, work and travel behaviors will be critical to ensure proper deployment of marketing and sales strategies, especially for businesses most affected by consumer mobility trends, such as those in the fashion and beauty sectors.

RSM contributors

  • Peter Cadigan
    Peter Cadigan
    Consumer Products Senior Analyst
  • Mike Graziano
    Mike Graziano
    Consumer Products Senior Analyst

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