Are experiences stealing discretionary dollars away from retail?

Jan 04, 2023

Falling coronavirus case levels and fewer restrictions drove a strong recovery in spending on experiences (i.e., travel, dining out, live events) in 2022 and they appear to be continuing to take significant discretionary dollars away from retail.

Mastercard SpendingPulse found in-person dining grew 15.1 percent from November 1 through December 24, as co-workers, friends and family held long-delayed gatherings. That’s double the 7.6 percent gain in U.S. retail sales.

Steve Sadove, Mastercard senior advisor, said in a statement, “Retailers discounted heavily but consumers diversified their holiday spending to accommodate rising prices and an appetite for experiences and festive gatherings post-pandemic.”

The shift back to spending on experiences follows record spending on goods earlier in the pandemic as people huddled in their homes.

According to a study released in October by the American Hotel & Lodging Association (AHLA), U.S. hotel leisure travel revenue was expected to expand 14 percent in 2022 versus 2019 levels. In September, U.S. restaurant reservations surpassed pre-pandemic levels, according to OpenTable.

In August, concert promoter LiveNation reported second-quarter attendances across its venues advanced over 20 percent versus the comparable 2019 quarter.

The economy’s reopening has resumed the broader shift towards the “experience economy” that has seen consumers seeking out memories in favor of material possessions.

A global survey from Momentum Worldwide conducted in October 2019 found an overwhelming majority (76 percent) would rather spend their money on experiences than products. The study found “inspiration and meaning” as the most sought-after quality in brands, a 200 percent increase in those attributes versus a 2012 survey.

According to U.K.-based data provider Refinitiv, hotels, restaurants and leisure is expected to be the only consumer-related industry to see positive growth in the fourth quarter as job concerns weigh on overall spending.

“Consumers have moved away from splurging and are going towards experiences,” Jharonne Martis, Refinitiv’s director of consumer research, told CNBC last week. “Not only do they want to go and eat out but fine dining and casual dining are outperforming quick service. So they want to go in the restaurant, have an experience, and pay the higher prices despite inflation.”

DISCUSSION QUESTIONS: How much of a factor has the spending shift toward experiences (i.e., travel, dining out, live events) been on retail in recent months? Do you see the appeal of experiences continuing to grow in 2023?

Braintrust

“With upper income households, experiences are going to continue to take spend away from retail, and yes, the trend will continue in 2023.”

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