Consumers Continue Making Consumption Trade-Offs in May

U.S. retail sales revenue, including both discretionary general merchandise and consumer packaged goods, increased 2% in May compared to the same month last year as unit sales declined 3%, according to market research firm Circana (formerly IRI and The NPD Group).

This growth came primarily from food and beverage CPG spending (a 5% increase in sales revenue and a 2% unit-sales decline), according to a June media release from Circana. Non-edible CPG sales revenue grew 2%, while unit sales fell 4%. Spending on discretionary (or non-essential) general merchandise continued to decrease through May, with a 5% decline in sales revenue and an 8% decline in units.

“Consumers are engaged and spending, just not at full throttle,” Marshal Cohen, chief retail industry advisor for Circana, said in the release. “Directional spending shifts, coupled with unemployment elevation, and recent air quality concerns in the U.S. could jolt a significant shift in consumer behavior. But, for the time being, consumers continue seek little luxuries and are willing to pay a premium for most of their purchases.”

For year-to-date through May, Circana’s Retail Tracking Service found that sales of apparel, technology and other “traditionally high-volume” categories declined from a year ago, but consumers did boost their spending in several categories.

Prestige beauty was the only category to exceed the sales growth noted in the food and beverage industry. Sales revenue increased by 16%, while the mass-market beauty sales grew by 9%. Retail sales revenue from video games, homecare goods, office supplies, automotive aftermarket products, healthcare products and floral sales also grew. Aside from prestige beauty, the average selling price for each of these categories increased by 5% or more, as unit sales declined.

Rising prices and declining consumer sentiment also drove down spending on discretionary general merchandise, but Circana said the “anticipated shifts in where people shop during a period of economic uncertainty have not yet materialized.”

According to Circana, e-commerce gained the largest share of sales revenue so far this year, rising more than 2 share points, and department stores maintained a steady share of the market. Value-oriented options, like mass merchants, warehouse clubs and “off-price” retailers, have yet to gain the expected levels of additional consumer attention.

However, the ways consumers are adjusting CPG purchases indicates that changes are brewing, according to the release. While overall spending remains elevated because of inflation, consumers are approaching their shopping trips differently.

For example, the average number of items purchased in a shopping trip this year is smaller than it was last year. Consumers have also begun their migration to more “value-focused” retail options, a change Circana says is likely a precursor of what’s on the horizon for the rest of the retail industry.

“Price is certainly part of today’s consumer spending story, but it is not the leading force,” Cohen said in the release. “Consumers are willing to spend if they are presented with something that's new or delivers greater value, extending the window of opportunity for manufacturers and retailers to make a move and elevate consumer engagement before the tide turns.”