A Seismic Shift In Consumer Spending

By: James Flippin · February 01, 2023 · Reading Time: 3 minutes

The Nice-to-Have Economy

During the pandemic, interest rates sat at record lows, which sparked investment in startups that offered creative “nice-to-have” concepts. Examples include flashy services such as ultra-fast delivery, custom clothing subscriptions, and used car vending machines.

However, amid recent economic uncertainty, record-high inflation, and recessionary concerns, consumer confidence reached its lowest point since the 2008 financial crisis. Subsequently, consumers appear to be shifting their spending away from indulgences, a move that has left once-popular startups struggling to keep the lights on.

The Need-to-Have Economy

This list of startups includes pandemic-era phenomenon Peloton (PTON), as well as Stitch Fix (SFIX) and Carvana (CVNA). Meanwhile, many food delivery companies are also facing challenges, including Blue Apron (APRN) and Freshly, which parent company Nestlé (NSRGY) announced will shut down this month. The common thread among these companies is that they all offer “nice-to-have” services.

During the pandemic, meal delivery was closer to “need-to-have” as it meant consumers could avoid risking exposure. But with spending power now limited for the average consumer, they’re more likely to drive to the store than splurge on delivery services.

Another potential contributing factor is that, while many of these startups are powered by technology, they are actually built on low-margin business models, unlike tech giants. Carvana, for example, touts high-tech capabilities like car vending machines, AI, and a fully-online car buying process. That said, it only generates a small profit on each car sold, making the explosive growth investors may hope to see from such a company unlikely.

Will This Continue?

The “need-to-have” economy is now an unfortunate reality for these startups. But how long will it last?

If this is a short-term shift in consumer spending, many companies may be able to tread water and burn their surplus of investment capital until the tides turn. But, if we enter an extended recession, it could spell bankruptcy for many pandemic-era startups.

So, if any of those “nice-to-have” products are “need-to-have” for you, it could be time to get them while you can.

Looking for more stories like this? Check out On the Money — SoFi’s one-stop-shop for news, trends, and tips!

Check it out

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
Communication of SoFi Wealth LLC an SEC Registered Investment Advisor
SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

TLS 1.2 Encrypted
Equal Housing Lender