As Consumers Allocate More Dollars To Travel, Accessories Demand Softens

Since January 2022, we’ve noticed a general softening in auto accessory demand. Here are the reasons, and what it means for the rest of 2022.

The Four Reasons Auto Accessory Demand Is Softening

Based on our research and conversations with clients, we’ve isolated four key issues:

1. Most clients had an excellent March 2021, and that’s impacting our analysis a little bit.
2. Americans are spending more of their discretionary dollars on travel and leisure.
3. New vehicle sales have changed in small but important ways.
4. Supply chain issues and price increases are impacting demand.

March 2021 Was A Strong Month

To the first point, most Americans received federal stimulus checks in March of 2021. As a result, all of our ecommerce clients enjoyed an excellent month. We noticed above-average sales and demand beginning the second week of March of last year, ending a few weeks later. As a result, many of our year-over-year comparisons make 2022 look worse than it actually is.

Americans Spending More Of Dollars On Travel And Leisure

Google has shared data showing that searches for travel and leisure activities have grown substantially in the first quarter of 2022 and that year-over-year interest in travel is up as much as 70%. While this is great news for the tourism industry, it’s not necessarily great news for the automotive accessory industry. As reported here on Schwab.com, accessory spending has likely enjoyed an outsized share of consumer discretionary spending since COVID hit:

The Consumer Discretionary sector—which is typically sensitive to swings in the economy—had its winners and losers with the onset of the COVID-19 pandemic…The shift away from brick-and-mortar stores is likely to continue to support fundamentals for online retailers (but) the sector is overly concentrated in internet retail and automobiles.

https://www.schwab.com/resource-center/insights/content/consumer-discretionary-sector

We have long suspected that auto accessories “grabbed” a larger share of consumer spending when COVID began, as our clients who sell more complex accessories (think superchargers, restoration parts, etc.) saw big sales increases starting in March 2020.

New Vehicle Sales Have Changed A Bit

We’ve seen a change in the way consumers buy accessories for brand new vehicles, with new vehicle accessory buyers spending more time deciding to buy (~15% longer) in our analytics reports. We think this is happening for two reasons:

1. Emotion and urgency levels are changing. Due to supply chain issues, new vehicle sales are largely order-only now. We believe this takes some of the emotion out of the vehicle purchase process, which in turn removes some of the emotion from the accessory selection process, too. A consumer with a vehicle on order also has less urgency when it comes to buying accessories, and is less emotionally invested in upgrades.
2. Dealers are doing a better job of selling accessories. Using auto accessory and personalization tools like Insignia Group’s VPC or Interactive Garage, new car dealers seem to have stepped up their accessory game. While some of this is likely a byproduct of the current “build to order” paradigm, it’s also a direction that new car dealerships have been moving in for a while now.

Google Trends data shows steadily declining search interest in both car and truck accessories over the last year.

NOTE: We firmly believe that the “build-to-order” new car purchase paradigm will not last. Automakers have strong incentives (market share growth, capacity utilization) to load dealers up with inventory once the supply chain returns to normal. And when consumers can walk onto a car lot and drive away in a new vehicle the same day, a lot of the emotion will return to the accessories process.

Supply Chain Problems And Price Increases

Last but not least, ALL of our auto parts and accessories clients have struggled with both backorders and price increases, which has reduced demand. Supply chain problems have been an ongoing issue for all of our clients since May of 2020, but in the last six months or so, many companies have been forced to accept substantial price increases in products (anywhere from 20% to 60%). Some of these price increases are surely driven by higher energy and labor costs, but many of them seem to be in response to scarcity (or the perception of scarcity).

As a result of price increases, some accessories have become much more expensive in a relatively short period of time. As just one example, check out the near 50% price increase on this Borla S-Type Cat-Back Exhaust kit between May 27, 2020, and March 24, 2022:

NOTE: By no means are singling out Borla or SummitRacing.com here – the point is that accessory pricing has jumped substantially since 2020.

Predictions For The Rest Of The Year

Unless there’s some big fundamental change in the economy, we believe the parts and accessories business is only going to improve moving forward. Household incomes are increasing, inflation will abate somewhat when energy prices fall back to their pre-Ukraine war levels, and consumer confidence is still strong despite falling from its 2021 peak. We’ve also seen several part and accessory brands pull off substantial price increases with no declines in revenue (meaning demand is still strong), and high vehicle transaction prices have been great for the replacement parts side of the industry.

Disclaimer: Predictions are difficult. All of our prognosticating should be taken with a grain of salt.