One of the great surprises of the last few years has been the so-called “destocking” by consumers and retailers who do not want to carry the high-priced brand names. That is starting to affect the bottom line of many companies.
Consumers, in response to the Great Recession, have begun to balk at the price of simple, everyday things like soap or razor blades.
As a part of that trend, consumers have developed a strategy to stock up on many ordinary items, such as frozen foods, tinned goods and even baby formulas, therefore to put off further purchases for the time being at least.
Many consumers, hit hard by the business contraction, are responding in that way to current trends by being extra careful about their shopping, using what they have before replenishing the goods on their shelves.
As a result, many big-name companies are cutting back on production and reducing the number of their employees; other companies, facing similar pressure, recently introduced lower-priced versions of their traditional product lines.
One company reported the average consumer is really looking very attentively at prices when they are in the store. Others report consumers are being extra careful when shopping, reviewing how much they have in the freezer and how much they have in the cupboard.
People simply are accumulating less. In summary then, bargain-hungry consumers are holding off buying necessities, waiting for a good deal, searching for specials and thus delaying any new purchases if at all possible.
As follows logically, that is taking a toll on manufacturers and retailers.
Economists would call that “consumer sovereignty.” That is to say the level of production, reflected what is desired by consumers, inasmuch as they actually determined what is produced in the long run.
In the present economic environment, consumers are not reacting to the usual patterns of demand. Rather, they are postponing purchases as much as possible for psychological reasons. This destocking, if it continues, could lead to a further downward spiral in business activity. With slower demand, employment weakens, further limiting the capacity-desire to consume.
The temporary stimulus measures provided by government may help for the moment, but the consuming population needs to be reassured that the economy is on a sound footing. Then, instead of destocking, consumers would resume their normal buying patterns.