Despite a strong economy, a significant portion of American consumers are grappling with financial challenges that impact their shopping habits in profound ways, and to win over their spending, merchants must understand the needs and preferences of these shoppers.
These consumers, who earn $50,000 or less a year and live paycheck to paycheck, represent a large but often overlooked segment of the market, as PYMNTS’ Karen Webster highlighted in an article on Friday (June 21). Their shopping behaviors are shaped by necessity and financial constraints, which affects their purchasing decisions and their overall economic impact.
Here are five key factors that determine the shopping behaviors of these consumers.
Back to basics
Consumers experiencing financial difficulties face a large burden of basic expenses. Food, housing, and monthly bills consume 72% of their income, leaving little to spend or save.
This high percentage highlights the tight margin you have to work within, making it essential to not only cut back on nice items but also find the best possible deals on essentials. Constantly budgeting to manage expenses with limited income means that these consumers are always looking for cost-saving opportunities.
Play safe
Second, this consumer group relies heavily on cash and debit transactions due to limited access to credit. Findings from a PYMNTS Intelligence series titled “The New Reality Check: Paycheck-to-Paycheck Report” reveal that while paycheck-to-paycheck shoppers having trouble paying their bills have 17% of existing credit cards, those cardholders are using credit Only for 20% of their purchases.
Conversely, Webster highlighted PYMNTS Intelligence findings that these consumers paid with cash or debit 27% more than the overall population. This reliance on immediate money rather than credit underscores the fragility of their financial situation, as they cannot afford to accumulate debts that they may not be able to repay.
Physical store
Webster notes that financially distressed consumers show a marked preference for shopping in physical stores over online platforms. This choice is driven by the desire to examine products firsthand and compare prices, allowing them to make more informed purchasing decisions. Additionally, the ability to pay with cash at checkout also aligns with their budgeting needs, providing a tangible limit to their spending, as counting bills can help them avoid overspending.
Digital augmentation
Consumers of all income levels who live paycheck to paycheck and struggle to pay their bills tend to be more digitally engaged than those who don’t face such challenges, Webster wrote. These consumers may rely on their mobile devices to search for deals and price-check features, clip digital coupons, and find the best value. This increased digital engagement highlights their proactive efforts to stretch their limited resources and manage their finances more effectively.
Superstore advantage
These consumers are more likely to shop at retailers known for their value, such as Walmart. When surveyed about their most recent purchases, 28% of consumers experiencing financial hardship chose Walmart as their favorite retailer, a number 27% higher than the average consumer. The appeal of Walmart and similar stores lies in their ability, afforded by their size, to offer lower prices on basic goods, which is crucial to consumers with limited budgets. The wide range of affordable products allows these shoppers to stretch their limited funds even further.
The shopping behaviors of financially distressed consumers who earn $50,000 or less annually are shaped by necessity, reliance on physical stores and pay-as-you-go methods, preference for discount retailers, high digital engagement for cost-saving measures, and tendency to skip non-essential purchases. Understanding these patterns is critical for retailers aiming to meet the needs of this important consumer segment.