Two Versions of Reality

On the one hand, there is the version of reality that Wall Street and Washington are desperate for would like you to believe:

"As Recession Fades, Americans Head to the Mall" (Bloomberg)

After two long years of belt-tightening, U.S. consumers are finally starting to spend again. That is giving the economy a much needed boost. Will the shopping spree continue?

It has long been a truism among economic forecasters: Never underestimate the willingness of Americans to spend. Year in and year out, in good times and bad, consumer spending somehow always managed to keep rising. Until the Great Recession hit, that is. Spending fell in real, inflation-adjusted terms in 2008 for the first time in 28 years, dropping by 0.2%. Outlays then declined a further 0.6% in 2009, the first back-to-back slump since the 1930s.

It took a series of aggressive government moves—from middle-class tax cuts to the cash-for-clunkers automobile trade-in plan—to get Americans shopping again. The result: Consumer spending rose in February for the fifth straight month, jumping by 3.4% from a year earlier. The key question facing the economy for the rest of this year is whether these gains will continue.

A growing number of economists and retailers think they will. Department store Saks is "moving from defense to offense," selectively rebuilding inventory and increasing investment as consumers "come out of their shell," says CEO Stephen Sadove.

Behind the budding optimism: pent-up consumer demand, higher incomes and wealth, and a more generous supply of credit from banks. Put it all together and it looks like the rise in spending is sustainable, says Michael Niemira, chief economist for the International Council of Shopping Centers in New York.

Then there is version described by the following reports, which make it pretty clear that those who believe the American consumer is back (or will be heading back soon) should lay off the hard stuff and think about checking into rehab (italics mine):

"Recessionary Impact: Fewer Shopping Trips and Less Spending Per Trip" (Nielsen Wire)

The recession continues its ravaging effect on retailers. According to Nielsen, the downward trend of consumers shopping less hit a new low in February 2010, reporting a 4% year-over-year decline in monthly all-outlet shopping trips. And while per trip shopping basket rings began to pick up during and after the holidays, February remained static with a 1% increase compared to last year. Retailers’ focus on store brands and retail price cuts helped keep spending levels in check driving more value for shoppers.

A closer look at monthly shopping trips shows that trends have virtually flat-lined in total and across all major retail channels. Grocery stores have been shopped two plus times more often than competitive retail channels. Other Nielsen trends show that consumers are not shopping more stores looking for deals as consumers consistently shopped fewer retailers each period in 2009 than they did in 2008. It is a tough market and breathing life into a different retail environment will take new strategies that keep shoppers satisfied and spending while they are in the store.

"Clothing Stores Adjust for Recession-Weary Women" (Womens eNews)

Women's clothing retailers are making bearish, long-term bets on the longevity of frugal shoppers in a cash-strapped, uncertain economy."The overbuying mentality is gone," says the president of retail consultancy.

Shop till you drop? That's so 2006.

Retailers are crafting marketing and merchandising campaigns around the new normal, making a bid for female shoppers still shell-shocked by the biggest economic downturn since The Great Depression.

From launching new budget versions of designer collections for spring to expanding their discount outlet stores, retailers have taken note that a return to pre-recession spending levels is unlikely, sources say.

Women will remain cautious about spending this year, says a recent ShopperScape survey by Retail Forward, a retail consultancy based in Columbus, Ohio. More than half will limit their purchases to replacing worn out items. Women also plan to "trade down" the clothing, accessories and shoes they'll purchase, opting for less-expensive brands, the survey says. The results are based on women of all ages and income groups who identify themselves as the primary household shopper.

"Until shoppers recognize job and income gains, the recession is not necessarily over for them," said Kelly Tackett, senior apparel analyst for Retail Forward.

Retail sales of women's apparel dropped 4.9 percent in 2009 from 2008, and fell 2.8 percent in 2008 from 2007, according to the NPD Group, a market research firm based in Port Washington, N.Y.

"The overbuying mentality we think is gone," said Craig Johnson, president of the retail consultancy and market research firm Customer Growth Partners, based in New Canaan, Conn. "The consumer is much smarter and savvier, much more judicious and more circumspect. They will go for value retailers and retailers that are offering exclusive value."

"Savings Is Topic of 'the Talk'" (Los Angeles Times)

Parents facing their own tough times are teaching the value of putting away money.

Lee Rousseau is drilling his 12-year-old daughter on the importance of saving -- in a bowling alley in northwest Michigan.

Every Saturday, after Rachael finishes her three league games, Rousseau sits down with the seventh-grader and calculates her allowance based on her scores. He adds dollars and cents for strikes and spares, and deducts for gutter balls. And the rule is, she must sock half of it away.

As he ruefully acknowledges, those are subjects Rousseau himself came to understand almost too late. He's mired in debt: $25,000 in credit card balances, first and second mortgages on the family home and a $12,000 loan for a travel trailer. But he's determined that his daughter will do as he says, not as he's done.

"I'm from the school of hard knocks," he said.

Across America, the deep recession has taught harsh lessons to millions of families. In some, it has stirred a passionate determination in parents to see that their children don't make the mistakes they made and learn what they wish they'd learned as kids: how to manage spending and to save.

If those impulses persist and have their intended effect, the result could be a watershed moment with profound implications for the nation's future.

"It may be a harbinger of a kind of cultural shift," said Eugene Steuerle, a senior fellow at the Urban Institute, a social and economic research institution. And for many families, he said, the change may be unavoidable: "It will be harder for households to borrow, so it will increase their savings rate."

"Consumer 'New Frugality' May Be an Enduring Feature of Post-Recession Economy, Finds Booz & Company Survey" (Booz & Co.)

Recession-driven behaviors – such as increased saving, deferred consumption, and weakened brand loyalty – are unlikely to change as general economy improves. A “new frugality,” born of The Great Recession and evidenced by two consecutive years of declining per capita consumption, is now becoming entrenched consumer behavior that is reshaping consumption patterns in ways that will persist even as the economy rebounds, according to a new surveyof 2,000 U.S. consumers from Booz & Company.

This new consumer spending report, the second issued by Booz & Company since the early days of the recession in October 2008 [link], confirms a picture of pervasive retrenchment in consumer spending that spans a broad range of consumer product categories. But the survey also suggests that increased frugality may have become learned behavior, making many Americans more cautious and discerning consumers. What is more, the study suggests that these behaviors are “sticky,” and unlikely to quickly change as the economy shows signs of improvement. For example, in the next 12 months just 9% of consumers intend to spend at pre-recession levels on household products, 10% on mobile phone service, 11% on health and beauty products, and 18% on apparel, clothing, and shoes. Moreover, nearly two-thirds (64%) of consumers say they’ll shop at a different store with lower prices even if it’s less convenient for them.

“Frugal behavior is now considered trendy by many shoppers, and will continue for years to come,” said Matt Egol, a Booz & Company Partner. “In this changed environment, marketers need to develop deeper insights into shopper attitudes and behaviors in order to better align their product, pricing, and marketing communications strategies.”

Evidence of changed consumer attitudes abounds in the study. For example:

• Approximately two-thirds of the respondents (65%) say they now consider saving to be more important than spending, and that they frequently use coupons.
• More than half (55%) say they would rather get the best price than the best brand.
• More than half of consumers surveyed reduced discretionary spending on a range of categories, including dining out (58%), consumer electronics (53%), apparel (53%), and media and entertainment (51%).

Further, these attitudes are translating into strong behavioral change going forward:

• Nearly two-thirds (64%) of consumers say they’ll shop at a different store with lower prices even if it’s less convenient for them.
• Only one-third (32%) of respondents believe that their household financial status over the next twelve months will change for the better, reinforcing focus on frugal shopping behaviors such as deferring spending, trading down to lower price points, or buying their favorite brands during promotions.

Several other consumer behaviors characterize the “new frugality.” Highlights include:

Shopping itself is less impulsive and more disciplined. Recession-habituated shoppers are more inclined than ever to do research before going to the store. This was especially true, the survey revealed, in three categories: Health and Beauty (83%), Household Products (82%) and Food and Beverage (79%).

Another study conducted this past Fall by Booz & Company in collaboration with Grocery Manufacturers Association, “Shopper Marketing 3.0,” found a comparable proportion of shoppers conducting research before they shop, with a focus on finding the best prices, clipping coupons, and reading circulars for what is on sale. The “Shopper Marketing 3.0” study also found that many shoppers use price breaks to justify buying the brands they love.

The shift to private label products has accelerated and shows no signs of slowing down. In fact, Booz & Company analysis shows that private labels are likely to continue to take share from brand names. Said Egol, “Retailers are unlikely to give brands back the shelf space that private label has taken given their dependence on private label for profits. In addition, consumers are reporting generally positive experiences when trying private labels, so for some consumers they are becoming preferred brands.”

However,the move to lower price points overall, while pervasive, is not universal. Generally, shoppers are opting for lower priced brands in apparel, household products, and food. But they are less inclined to “trade down” when purchasing alcoholic beverages, tobacco, and health and beauty products.

Not surprisingly, big ticket items will continue to see the biggest household spending cuts: In the past year consumers continued to defer expenditures for items like consumer electronics (only 22% made purchases) or home improvements (23% made purchases). These behaviors will continue in 2010; only 13% and 17% respectively said they would revert to pre-recession buying habits in these categories.

"2010 Post-Recession Consumer Study" (Ogilvy & Mather)

Today’s consumer is emerging from the recession with a radically new definition of the American Dream and a renewed sense in their own resourcefulness and priorities according to a just released quantitative study of 1200 consumers and qualitative research with nearly 700, conducted by Ogilvy & Mather Chicago in partnership with leading consumer insight company Communispace.

New View of the American Dream

Among the study’s key findings is that “having it all” is an unrealistic goal with 75% of those surveyed saying they would rather get out of the rat race than climb the corporate ladder – and instead, 76% said they would rather spend more time with family than make more money. Moreover, Americans are showing disenchantment with the pursuit of money with 75% again saying they would trade job security over a job that offered an opportunity for raises.

“The most surprising thing about our study was how much consumers were saying what they would NOT do for money, even when money worries are high on the list,” explained Graceann Bennett, Managing Partner and Director of Strategic Planning at Ogilvy & Mather Chicago. “Prioritizing your life based on money is seen as a sure way to be disappointed since the pursuit of money is often reliant on factors outside of consumers’ control. They have gone down this road before and are saying that they are not necessarily happier or better off as a result.”

In fact, the recession has revealed important new consumer priorities with quality of life and peace of mind at the top and a focus on living life in a more sustainable way both from an environmental and financial point of view.

Comments

[MichaelN]

Want to know about spending? Just check the sales tax revenue for the states - which, in spite of multiple rate increases, is STILL declining - albeit at less than earlier percentages.

When this figure INCREASES, then "we'll know."