Millennials Lead Shift to Value Brands as Inflation Forces Consumers to Trade Down

Millennials Lead Shift to Value Brands as Inflation Forces Consumers to Trade Down

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“Consumers are still spending, and they’re adapting to inflation, but adapting is not the same thing as escaping it,” Taylor Bowley, an economist at the Bank of America Institute, told Business Insider.

Stubborn inflation has altered American spending habits, driving consumers to hunt for value and trade down to cheaper brands at levels not seen since 2021, according to a new report from the Bank of America Institute.

The Bottom Line:

  • The Bank of America Institute’s spending tier composite has trended downward over the past few years, reflecting the most consumer trading down since 2021.
  • About 57% of consumers spontaneously mentioned in University of Michigan surveys that high prices have eroded their living standards, up from 46% in February.
  • Millennials are leading the shift toward value-oriented shopping, pushed by the costs of raising families, high housing, auto, and childcare expenses.

Federal Reserve Rate Hike Expectations Rise

“About 57% spontaneously mentioned that their living standards have been eroded by high prices, the highest seen since May and up from 46% in February, just prior to the Iran conflict,” Joanne Hsu, survey director at the University of Michigan, said in the latest release.

Millennials Drive the Bargain Hunt

The Bank of America Institute created a spending tier composite using consumer data across apparel, dining, grocery, and travel, combined with the median incomes of shoppers at premium, standard, and value stores. The resulting metric shows that households are increasingly shifting spending to value-tier merchants rather than high-end establishments.

“Millennials are leading the move toward value-oriented spending. Since 2022, Millennials’ spending tier has fallen faster than that of Gen X or Baby Boomers, particularly in apparel and groceries, suggesting greater sensitivity to rising costs,” analysts at WWD reported. Millennials face the dual financial demands of early middle age, including parenting costs, childcare, housing, and auto payments.

Millennials Lead Shift to Value Brands as Inflation Forces Consumers to Trade Down
Photo: Yahoo Finance

Gen Z consistently posted lower composite scores due to lower incomes and fewer accumulated assets, while baby boomers maintained the highest composite score.

Consumers Shift Toward Value in Apparel and Dining

The shift toward value is most pronounced in apparel and dining. Apparel recorded the largest decline in the spending tier composite, showing that consumers respond to rising prices by shifting purchases to lower-cost retailers or postponing discretionary buys.

“While consumers can delay apparel purchases, trading down on groceries is notable because it suggests Millennials are seeking savings even in areas where spending is harder to avoid, like food,” Yahoo Finance reported.

Travel has shown a different trajectory. Airline spending growth remains propped up by higher fares even as transactions dip, while hotel spending growth and cruise spending have seen renewed strength, with cruises serving as a budget-friendly travel alternative.

shoppers
Photo: WWD

Corporate Earnings Reflect Caution

Recent earnings calls underline the broad reach of affordability challenges across income brackets. Scott McPherson, CEO of Performance Food Group, said that consumers remain value-conscious and selective with discretionary spending, adding that gas prices around $4 on average pressure households.

Ryan Grimsland, CFO at Advance Auto Parts, noted during an earnings call that hard parts categories remain soft as value-conscious consumers defer major repair projects.

“Lower-income customers are prioritizing needs over wants, shopping closer to need, and in many cases delaying discretionary purchases where they can, while higher income customers continue to trade down in search of value,” Eric van der Valk, CEO of Ollie’s, said during the company’s earnings call.

Wage growth remains positive, which Bowley noted helps absorb some price increases, though wage gains have limits, particularly regarding housing costs. According to analysts at WWD, it remains unclear how long this value-focused consumer mindset will last.

Disclaimer: The information provided in this article is for educational and market analysis purposes only and does not constitute financial, investment, or legal advice. Always consult with a certified financial professional before making investment decisions.

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