Forget inflation. Best Buy’s CEO says we’re living in a “funflation” economy—and it’s hurting her business.
“‘Funflation,’ Taylor Swift…those experiences are really where people are willing to pay,” Corie Barry said at Coins2Day’s Most Powerful Women Summit in Dana Point, Calif., adding that this “means the bigger ticket items in electronics are not right now where people are interested.”
Best Buy’s sales boomed during the pandemic, as workers invested in electronics for their remote work setups and entertainment, Barry said. Now business has slowed down as consumers spend on increasingly expensive necessities, like food and fuel, or luxuries denied during lockdown, like concerts and vacations.
As a result, Barry says, Best Buy’s televisions and PCs are being pushed to the back burner. This was evident as electronics sales cooled more than expected during second-quarter earnings. Other sectors including appliances, pet supplies, and home improvement are also being hit by the recent consumer trend, Barry said.
What is ‘funflation’?
The term is a mashup of the words “fun” and “inflation,” to state the obvious—but it speaks to the curious spending habits that have been befuddling economists for years now. In short, higher demand for fun experiences drives higher prices for fun experiences. After years of being locked down, American consumers have been eager to get out of the house and splurge on items like Taylor Swift concert tickets, Barbie in theaters, and airline tickets.
For instance, Swifties spared no expense for the Eras tour, spending hundreds or thousands of dollars on tickets and costumes, Coins2Day’s Alicia Adamczyk reported in March.
This has also been called a “YOLO economy,” in which consumers use the mantra “You only live once” to justify their purchases. The term “revenge spending” has come into use as well, with Delta CEO Ed Bastian referring to the fun-seeking phenomenon as “revenge travel” and saying it’s a $300 billion market opportunity.
“People talk about revenge travel, or pent-up travel—this is beyond anything that people can classify as truly pent-up,” Bastian said on Coins2Day’s Leadership Next podcast in June. “We went through several years of people not being able to get back out and travel and experience and see loved ones, see their business colleagues, adventures—all the reasons we travel. And people had a lot of time.”
Something’s gotta give
Overall, consumers have remained shockingly resilient this past year, despite the Federal Reserve raising interest rates in a bid to dodge a recession. People are splurging even as prices for housing, fuel, and groceries surge. Not to mention that student loan payments are back, further stretching millions of U.S. Households.
Their continued spending has been buoyed by savings left over from the government’s $4.6 trillion stimulus package, and a job market that “defies expectations” with low unemployment rates and hundreds of thousands of open jobs, according to Barry. But something has to give. For today’s American consumer, that means “nice to have” discretionary items.
Best Buy isn’t alone. Target also pointed to Swift and the Barbie movie when its first quarterly sales dropped for the first time in six years.
But “funflation” shows no signs of stopping, and retailers will need to innovate to get customers’ attention again. For Best Buy and Barry, that means relying on the intensifying integration of technology with daily life.
“The greatest thing about our industry is innovation,” Barry said. “So yes, right now people are pulling back, but the future will only be more enabled by technology, and we are the ones that know how to commercialize that new tech better than anyone.”