Consumer sentiment heading into the holidays is low, but that could mislead marketers

Yet consumer confidence doesn’t look promising. In August, the University of Michigan’s regular sentiment tracker placed U.S. consumer confidence 10% lower than the same time last year, while 43% of American households say their finances aren’t keeping up with inflation (2.9% at the time of writing), according to TransUnion survey data. One-quarter of consumers cite managing their budget as the biggest stressor during holiday season, per a Dentsu survey released in August. And 62% of consumers expect to still be finalizing their shopping decisions deep into December, per a study published today by Experian and retail data firm GroundTruth.

For Experian senior account executive Colleen Dawe, it’s reason to expect a “mixed bag” this autumn. “Shoppers are trading down and prioritizing deals, really seeking out that value, but not totally pulling back,” she added.

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Curiously, there’s a gap between marketers’ expectations and those of consumers. Experian’s study found that 66% of marketers expect holiday spend to go up, but only 22% of consumers think it will —and 27% expect their spending to fall compared with last year.

So, are marketers heading into an ambush? Unlikely. Though budgets haven’t proven totally immune to pressure — ad-spend forecasts from several companies, including WPP Media, were downgraded earlier this year — investment hasn’t fallen off a cliff. Marketers are taking measures to ensure they’re not caught out by sudden changes in wind direction, but they’re still foot-forward on media investment.

Clients are “cautiously optimistic,” looking ahead to the holidays runway, said Mile Marker’s Scott Shamberg. “They’re trying to be as flexible and agile as possible,” he added. And, while we’ll likely see brands lean harder on “safe bets” adjacent to e-commerce and retail like paid social, search, retail media, as well as live sports, brand investment isn’t out of fashion.

Outerwear brand Mammut for example, just launched its latest global brand campaign on paid social, YouTube and digital display with agency Dept. Mammut CMO Nic Brandenberger told Digiday the company hopes to tap into a wider audience than its usual core of Alpine enthusiasts at a time of year when gift-buyers and fashionistas alike are thinking about purchasing decisions.

“We feel like there’s good room for us to grow and so we’re broadening our lens,” he said. CMOs like Brandenberger have to keep indicators like consumer confidence front of mind when bringing a big campaign to bear. Despite the tariff placed on Swiss-made goods like Mammut’s, he said the firm was “hesitant” to react too quickly; its premium positioning grants it a price cushion for the time being. “We’re still investing in the US market,” he said.

“There’s still relative confidence in management and actually in the analysts and investors in the contribution that advertising and marketing makes to these companies continuing to grow,” said Kate Scott-Dawkins, president, business intelligence at WPP Media.

In part, that’s because companies that can’t swallow cost increases are obliged to justify their higher prices to consumers. Even if consumer sentiments are depressed, it’s on brands to make their case. “They have to convince consumers that it’s worth paying for coffee even though input prices are up, and [worth] paying for chocolate even though input costs are up,” said Scott-Dawkins.

There’s also the fact that falling consumer sentiment isn’t the same smoking gun indicator of a slow market it once was.

Prior to the pandemic, ad spend and consumer confidence were strongly correlated. Since then, something’s broken — and consumer sentiments aren’t reliable indicators of real spending anymore.

In the past, consumer confidence typically fell as inflation rose. Between January and June of 2008, the Consumer Sentiment Index fell 22% while consumer price inflation rose 0.7% to 5%. As the weekly grocery run got more expensive, shoppers became more pessimistic. U.S. advertising spend, you’ll recall, lagged the rest of the world that year, rising just 3.7% (and that was with an Olympic Games and a general election in the mix).

The relationship was particularly strong during the pandemic, but it’s become weaker since. Between January and June of this year, while consumer inflation fell 0.3% consumer sentiment also fell 19.5%. The two indicators, in other words, aren’t as strongly linked as they once were — and pessimistic shopping sentiment shouldn’t be taken as a reason to retreat to performance media.

If anything, there’s more danger in pulling back from the market and missing out on real sales and commercial growth — than in overcommitting. 

“Don’t let the noise distract you from the fact that the equation has been and will be the same; we need brand media to bring people into the funnel  and get your talking points across … and you’re going to get less and less [from] your performance media over time if you don’t make those investments,” said Fred Seddon, director and retail media lead at Kepler.

“It’s not the time to sit back and pull back spend just because of how quickly things are moving,” concluded Scott-Dawkins.