Retailers are coming to terms with a new reality: the consumer who traded down during the recession and never came back.
Buffeted by high unemployment, heavy debt loads, falling home values and high food and gas prices, these shoppers have been whipped into a permanent state of consumer caution. They buy only what they need, avoid premium labels, clip coupons and scour sales.
Wal-Mart Stores Inc. Chief Executive Mike Duke told analysts in a recent conference call that paycheck-cycle shopping is more pronounced than ever, with shoppers stocking up shortly after getting paid, then moving to smaller product sizes toward the end of the month when they run short of money.
"Consumers are fragile, fatigued and fed up," said Chris Christopher, senior economist at IHS. Global Insight, citing wage stagnation, food inflation and high gas prices.
Retailers and manufacturers are figuring out how to appeal to these new "forever frugal" consumers—rather than pin too much hope on economic rebound. Some are waiting longer to pass on higher costs, whether for food or cotton. Coca-Cola Co. and other companies have added new packages at small sizes and lower price tags. Some retailers are holding the line on hiring, even as they head into their busiest season of the year. Many stores are expanding their selection of cheaper private-label products and some are offering credit cards with across-the-board discounts. Layaway has made a comeback.
In some ways, this is a good development. It indicates that consumers are far more likely to live within their means. However, the causes of it -- high unemployment and the downward pressure that bears on consumer sentiment -- are still with is, which is obviously a massive negative.
I do think we are witnessing a profound change in overall consumer psychology in this area.
4 comments:
I find that article horrendously flawed in a key oversight: People aren't cheaping down; they're buying LESS. There wasn't much to cut in terms of product costs before the recession; Americans had been hyperfocused on price (as opposed to value) long before. It's not like MP3 players had any corners left to cut. Corn was already so cheap we enacted policies to destroy it (that are now biting us in the arse), and what costs are left to cut in Coke? Is there a cheaper sweetener than federally subsidized HFCS?? This is key because it means American businesses have little margin to work with. They've all shifted to a high-volume model at the expense of margin (BUY MORE! LOW LOW PRICES! SAVE SAVE SAVE!), and the ominous sign is that volume is disappearing as well.
My point is that Wal-Mart probably isn't a great place for insight; as they drove premium labels into the ground before the recession could do that. Target isn't much better; the difference is mostly marketing. They can muddle through with sheer market share even if it means cutting back to one open cashier line. I'm more interested in seeing the effect on places like dine-in restaurants. Plenty of low-cost competition and an inflexible business model that relies on disposable income.
My sense is that up until this most recent recession, the average person had a fundamental assumption that, over the long haul, things improve. Now that's going away and that's a huge problem. Taking on debt is a perfectly reasonable thing when you expect your income to be consistent and to grow over time. But now few people can trust that to be the case. The fear behind this is further exacerbated by all the nightmare scenarios being proffered by the Eurozone right now.
This won't be changing anytime soon either. I suppose Europe could get it's shit in order and settle that lingering uncertainty but that seems unlikely. So the economy isn't going anywhere...
Steve S - If you're trying to feed a family of four on a single income because your spouse got laid off, not doing well because food prices are exploding, can't count on your employer to keep you employed, can't count on the government, don't own your own home and have dwindling savings, I really doubt you're worrying about what's going on in Greece.
'Affordable luxuries' like Starbucks coffee are no longer affordable, so consumers are starting wonder: "What was so luxurious about it in the first place?"
The answer is usually: "nothing more than its brand", and once the luster of a brand is gone, it's usually gone for good, even if it once again becomes affordable.
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