Inflation that squeezes family budgets is usually bad for upper-scale consumer brands in retailing, cosmetics, restaurants and gym operations.
But inflation can also be good for lower-scale brands that provide value to consumers as they “trade down” from more expensive to less expensive products and services.
That’s according to Ethan Chernofsky, vice president of marketing at foot traffic analytics firm Placer.ai.
“Even a challenging economic environment can be beneficial for certain retailers, and those with an orientation towards value — chains like Dollar General, Big Lots, and more — are uniquely well positioned,” he told International Business Times in an email. “Consumers are actively looking to maximize spending, and one way to do that is to ‘trade down’ for more value.”
The “trading down” is a broad trend. It extends across several consumer areas, from dining to grocery, superstores, discount and off-price, apparel, dollar stores and shopping malls.
Chernofsky’s comment follows the release of a new Placer.ai white paper titled “Brands That Are Beating Inflation.” It reveals that inflation has slowed but not stopped Americans from visiting the nation’s stores.
Foot traffic in retail stores was down only 0.3% last August compared to August 2019 — a sign that the retail sector is beginning to stabilize.
Moreover, the report identifies six successful brands in this challenging environment: Dollar General, Five Below, McDonald’s, Citi Trends, Ulta and Planet Fitness.
While each band caters to different consumer market segments, they all have one thing in common: They deliver consumers value for their dollars.
For instance, Dollar General and Five Below stores provide essential goods like cleaning products, package goods and consumables at significant discounts.
McDonald’s provides an alternative to traditional dining, with dollar-value menus and senior discounts. Another Placer.ai survey finds that in the week of June 6, when inflation was running at an annual rate of 8.6%, traffic at full-service restaurants decreased at an annual rate of 4%, while traffic at Quick Service Restaurants (QSR) and fast-food restaurants increased by 7.3%.
Likewise, Planet Fitness is a low-cost alternative for gym-goers, with its revenues in the most recent quarter growing at an annual rate of 68.90%.
Ulta offers multiple-price points within the same stores. It saves consumers time and gas money, with its revenues in the most recent quarter growing at an annual rate of 18.8%.
Wall Street has noticed. With the exemption of Planet Fitness, all brands have outperformed the rest of the market YTD.
Chernofsky thinks this “great consumer trading down” that gives a short-term boost to dollar and discount players has longer-term potential, too.
“Should these retailers succeed in ‘converting’ some of this newfound interest, they could end up positioned for even greater success moving forward,” he said.
Disclosure: The author owns shares of McDonald’s and Dollar General.