While working in commerce and finance news, we at PYMNTS get to cover lots of surprises but very rarely are those surprises good news. Mostly, when the word “surprise” occurs in one of our articles, it is accompanied by the words “data breach” — especially in the last year or two.
But proving the Fourth of July can deliver more than fireworks and the occasional full-scale rebellion from the British Empire, in 2015, the Fourth will also come with some refreshingly good news from a perhaps surprising source.
In honor of the Fourth, MPD CEO Karen Webster and MasterCard Advisors’ SVP and Group Head Sarah Quinlan chatted about how retail spending has shaped up during summer 2015. Quinlan is better known by some as “The Duchess of Doom” — a moniker that hints at her famously direct (and often not so happy) assessments of market conditions.
This summer, however, has no doom to offer, Quinlan told Webster — and in fact has been by all signs pretty encouraging.
“I think you have to go back to what consumers are actually doing. The reality is people vote with their dollars because that is the thing that is most personal to them, their own income and spending. And the key thing that we are seeing, we are seeing consumers accelerate as the weather is improving.”
So, there you have it.
Webster noted that this perception matches up with some of the data she has seen that indicates consumer confidence is on the rise —particularly out of a recent University of Michigan study. However, Webster noted, that data is seemingly balanced off by a Harris Poll that indicates nearly the opposite — that consumers are in fact feeling a little worse about their future because they are not all that comfortable with the direction of the country’s economy.
Quinlan noted that — particularly with the low (down 23 percent from last year) price of gas — the numbers might look depressed, but a closer look at how consumers are voting with those dollars seems to be indicative of some baseline confidence.
She pointed to the continued and expanding importance of experience-based purchases, which in the summer months is translating into an uptick in travel-related expenses.
“We saw very strong rebound spending in consumer airlines in terms of May spending. We know people tend to book airlines about two months out, so from what we can see people will be traveling this summer and thus will be spending,” Quinlan noted. “And more than an undeniable increase in airlines tickets, we also saw price inflation, so there was no discounting to fill those seats.”
And while the rebound in travel is good news for airlines and merchants located in vacation destinations where vacationers will likely expend their shopping budgets, Quinlan noted the positive indicators in the spending picture are actually pretty broad.
Durable goods are improving — particularly furniture.
“That is furniture, as opposed to what had been leading, which is furnishings. Those are accessories, where as furniture is the bigger, more lasting stuff you sit on,” Quinlan noted. “That ties into consumer confidence. If I am a consumer, and I feel like I can make a bigger purchase that I think I can finance over one or two or three months, that is a sign of stability in my income. We’ve seen an acceleration in that kind of spending.”
There are also indications that auto sales are improving — both in the direct data about action on lots and the indirect data from tire and repair shops.
“They are inversely correlated,” Quinlan noted. “When car sales are down, tire and repair sales are up, for the obvious reasons. The average car has gotten to be 10.2 years old, which really says something, and the move to replace instead of continuing to repair those cars also is an indication that consumers are willing to take on expenses that will take a few years to pay off.”
The bottom line is simple: Worried consumers stay home from work for a week, watch Netflix, sleep on a futon and don’t buy new cars. Confident consumers sleep on a new mattress, go on vacation (and fly there) and buy a new car. The increasing extent to which consumers are doing more of the latter than the former lately are all indicators that perhaps things are looking up for people.
But those people, Quinlan noted, have changed a lot as shoppers. They are more likely, for example, to patronize small retailers. She told Webster that while total retail was up 4.3 percent (minus gas), small retailers saw their business up 7.3 percent going into the summer season.
“So that is a really big pickup, and I think it is because people want that unique experience, those unique goods, and consumers are willing to pay more for that. And they are more likely to go to the specialty small business that can provide it.”
The low gas prices have been a boon, she noted, because though it has not generated the big spikes in consumer spending that were forecasted in late 2014, it has led to a consumer that is more willing to spend creatively and with a longer term view in mind.
And that, she said, is not only good news for the summer spending season but also a strong indicator going into fall and the main event — Holiday 2015.
But July is too early to worry about Christmas, and though no one will celebrate the increased economic activity among Americans this Fourth of July weekend by shooting off fireworks, that is OK, says Quinlan. Americans will be celebrating in a better, more economically productive way.
By spending money.
As for capturing that spend?
“As always, I will say that it will be critical for the retailer to focus in on creating that overall experience. It is not enough to just sell someone a good anymore; they are really looking for the whole package.”