Jeff Bezos asks consumers to go slow on spending this year

How would you react if the fourth richest person in the world, who made his billions by making people buy online, asks you to go slow on spending. Obviously, you got to take it seriously. Why would a man as incredibly intelligent and sharp as Jeff Bezos want to shoot himself in the foot by scaring away customers. His online (pins to planes) business virtually runs on a vital and robust online selling ecosystem. The very growth of Amazon depends on people coming back to buy products online. Why would such a man try and scare people away from shopping. But, we will come back to this point later.

However, it must be remembered that Bezos is not the first high profile leader to warn consumers about going slow on spending. Just a few days back, David Solomon, the chief of Goldman Sachs, had asked people to go slow on spending (batten down the hatches) as he called it. In a Squawk Box interview, Solomon had warned that the US economy was in the throes of a recession and it would be wise to sit on cash rather than try and go on a shopping spree at this point of time. With the Fed having already hiked rates by 375 basis points and set to hike another 50 bps in December, the recession risk is still lurking.

Both David Solomon and Bezos emphasized on a very important point. They underlined that even if the US economy did not go into recession at a macro level, there would thousands of American families that would find its household budgets going into recession. In short, they were referring to the huge inequalities in income levels in the American economy and how even a partial recession could mean immense pain for the more vulnerable families. These are the families that also have the highest propensity to consume as well as the potential to create aspirational demand in the economy. That is the segment they are worried about.

Bezos and Solomon called on the households and the corporates to recognize these risks and prepare accordingly. Bezos underscored that given a choice he would advise his own customers to go slow on consumption spending. In the aftermath of COVID there was a lot of revenge buying coming in the economy. However, things have changed in the last one year but the consumption binge is still on. While Bezos is not dissuading people from shopping, his contention is that people need to take a longer term view. No point in splurging money on buying durables, where the demand can be postponed.

Recession warnings have been coming in thick and fast from the US Fed. In fact officials of the US Federal Reserves have been consistently issuing warnings that a recession is entirely possible as a result of the monetary policy tightening. As of now, it is not too clear if the recession would be mild or deep or whether there would be a recession at all. Projections for GDP growth stand at 0.2% for 2022 and 1.2% for 2023. While the likes of Bezos, Solomon and Jamie Dimon of JPM have been on the cautious side, others like Brian Moynihan of Bank of America continue to remain bullish and don’t see any fall in consumer spending.

Why exactly is Bezos dissuading shoppers from spending?

To quote Brian Moynihan of Bank of American, “Consumers may just hang in there”. Then why are the likes of Bezos warning people and asking them to slow down. There could be several reasons.

• Men like Bezos are just playing it safe. A lot of the demand for the products on the website of Amazon comes from the marginal customers with a high propensity to consume but also vulnerable in an economic context. Bezos does now want this segment to experience the worst of a slowdown and damage his long term customer base.
   

• It is a smart public ploy. An auto manufacturer asking you to stop buying cars and take public transport sounds weird. However, in the case of Bezos, he wants people to consumer but does not want to them to buy on credit and get into a credit trap.
   

• It may pay rich dividends to Bezos and Amazon in the long run. Amazon recently acquired the dubious distinction of being the only company in the world to lose $1 trillion in market cap. At this stage, Bezos needs a smart and bold narrative. This is just that. If it helps people in tough times, they are sold on to the Bezos approach for life.