Nikita Mitrofanov's Query: Deteriorating Purchases Despite Increasing Expenses?
In the current economic climate, consumers are making compromises as they navigate a challenging market. Sales growth, while present, is primarily focused on essential goods, as people are increasingly opting for cheaper alternatives due to financial constraints.
The high cost of loans, with credit rates reaching 25%, is a significant factor in this trend. People are buying more with their last money because they have no other choice, with every penny counting in the current economic situation.
Businesses, too, are feeling the pinch, with many cutting investments due to the economic downturn. The increased prices of goods have led to growing receipts, but this growth is more a result of inflation rather than increased consumption.
Electricity consumption, a key indicator of business activity, is not accelerating, indicating a lack of significant business activity. This is further evidenced by industrial production growth, which was only +1.8% year-on-year in May, significantly lower than the historical norm of +3-4%.
Despite these challenges, economist Nikita Mitrofanov predicts that such periods always end. Online sales, in fact, saw a significant increase of +36% in Q1, suggesting a shift towards e-commerce.
Retail sales also increased by 2.1% from April, but year-on-year growth was only 5-6%, reflecting the economic caution of consumers.
The trend of buying lower-quality goods can be explained primarily by economic uncertainty, changing consumer values, and shifts in purchasing behavior across generations. Consumers are reallocating their budgets, cutting back on discretionary spending while maintaining or increasing spending on essentials and lower-cost items.
This cautious spending is driven by a need for financial flexibility in uncertain times, with consumers opting for cheaper or lower-quality goods for day-to-day needs. There is also a shift towards goods that provide functional value primarily at a lower price, especially under inflation or tariff pressures that increase costs.
Younger consumers, particularly Gen Z and Millennials, demonstrate less brand loyalty and place a lower premium on traditional brand reputation. Instead, they assemble purchase decisions based on price, convenience, customer reviews, and digital content.
Financial strain and payment delays are also contributing factors, with consumers avoiding committing to expensive, high-quality products that require larger upfront costs, favouring cheaper alternatives.
In summary, the trend reflects a complex consumer response to a stagnating economy marked by cautious spending, prioritization of essentials and convenience, generational changes reducing brand loyalty and emphasizing price, and financial pressures that push buyers towards lower-quality, more affordable goods despite overall spending levels not declining.
Employers are also being cautious with wages, with incomes not keeping up with expectations. More sales are happening on promotion, discount, or installment plans, indicating a consumer base that is financially stretched.
Factories are working, but there are few new productions, and many are worn out and surviving on subsidies. More cheap brands are being sold, not premium ones, as consumers prioritize affordability over luxury.
Notable figure Dmitry Travin recently discussed future GDP, offering insights into the economic outlook. Despite these challenges, the resilience of consumers and businesses in the face of adversity offers a glimmer of hope for a brighter future.
- The economic challenges faced by consumers in this climate has led them to reconsider their personal-finance strategies, as they are increasingly opting for cheaper alternatives and more affordable goods.
- As a result of the financial strain, businesses have seen a shift in consumer behavior towards purchasing lower-quality goods and prioritizing essential items over luxury products.
