US consumers trade down as economic angst grows
Monday, 14 July 2008
WASHINGTON, (Internet): Spurred by economic worries, American shoppers have quickly decided that cheaper is better. They are trading down to store brands from fancy labels, to small cars from SUVs, and to deep-discounters from full-service stores.
Wal-Mart Stores Inc, which last year returned to its discount roots to try to reverse weakening sales, last week reported its best monthly sales gain in four years; it benefitted from bargain-hunters seeking deals on the most basic stuff.
Discount stores overall saw sales jump nearly 6 per cent last month, while those of full-price department stores declined. Consumers' use of discount coupons is starting to rebound after a 15-year slide. In June, the lowly Toyota Corolla became the best-selling vehicle in America, a spot held for more than two decades by the beefier (and pricier) Ford F-150 pickup.
Trading down is a common consumer reaction to economic ills. But this time around, the change has come unusually fast and may be touching on the broadest array of goods since the recession of the early 1980s. The combination of historically high fuel prices and soaring food costs, combined with falling housing and stock values and tightening credit, are severely damping the spending habits on which the US economy has long thrived.
The about-face in consumer behaviour could bring striking changes to the marketplace, as retailers revamp everything from the size of their stores to the way they stock their shelves, and may force manufacturers to trim niche products in favor of more reliably selling basics.
"There has been a major shift in thinking by shoppers," says Thom Blischok, head of consulting at Information Resources Inc, which tracks spending on consumer goods. "Consumers are moving away from availability, to affordability." Dunnhumby Ltd, a consulting firm that tracks shopping habits for many retailers and manufacturers, says 20 per cent of loyalty-card holders of its US and European retail clients are "radically" reducing spending, according to its analysis of their purchasing data.
The shift challenges a 20-year embrace of ever-pricier exotic foods and a widening array of luxury goods. In the 1980s, Americans warmed to designer labels, Egyptian cottons, and shopping as a form of entertainment.
Now, consumers are pessimistic that their ability to spend will improve any time soon. Two-thirds of Americans expect the current slump to last for several years, according to the latest survey of consumer expectations. Consumer confidence has dropped 38 per cent in the monthly index since its January 2007 peak, and last month 57 per cent of those surveyed reported their financial situation had worsened, the highest figure since the survey began in 1946.
At almost every income bracket, Americans are changing buying habits and deciding they can live without old favourites. Bob Swanson, a 48-year-old Houston software salesman, drove BMWs for most of the past two decades. But as the price of premium gasoline jumped, he traded his 8-cylinder BMW 540 for a more frugal 4-cylinder Honda Accord that he bought secondhand. "I went from an average of 14 miles a gallon to an average of 24," Swanson says.
Visits to department stores are down 6 per cent this year, down 7 per cent at office-supply stores and down 10 per cent at home-improvement retailers, says market watcher Nielsen North America, which tracks store traffic and spending. But the downturn has proved a boon for retailers at the bottom of the price scale. Family Dollar Stores Inc, a small, discount department-store chain, forecasts same-store gains of 4 per cent to 6 per cent for its fiscal fourth-quarter ending August 30. Dollar General Corp, another discounter, recently reported same-store sales jumped 5.6 per cent for the fiscal quarter ended May 2.
Trying to lure the newly frugal, big retailers and brand-name goods manufacturers are revamping their goods and promotional offers to suit the times, relying on increased efforts to track their consumers' habits. For instance, in Texas, grocer HEB Inc has begun stocking up on inexpensive fare-beans, rice and flats of eggs-toward the end of the month, as customers run out of money.
Wal-Mart says it is putting more multipack items on its shelves at the start of the month when many customers are flush from being paid, then switching to individual items that require smaller outlays later in the month.
Thursday, the nation's largest retailer reported that US same-store sales for the five weeks ended July 4 rose 5.8 per cent, Wal-Mart's highest monthly increase since May 2004. The big results for the June reporting period were partly attributable to temporary factors benefiting many discount retailers. Federal tax-rebate checks were trickling in, and there were two first-of-the-month days in the period, when many customers get paychecks or government payments and visit stores.
But Wal-Mart also returned to its roots at just the right time. Unlike other retailers, the discounter's less-affluent customers felt the pinch of rising energy and credit woes as early as 2006. Wal-Mart ultimately responded by cutting back on new-store construction and revamping its merchandise. It cut inventories and renewed its focus on reducing prices, just as the economy swooned.
Wal-Mart Stores Inc, which last year returned to its discount roots to try to reverse weakening sales, last week reported its best monthly sales gain in four years; it benefitted from bargain-hunters seeking deals on the most basic stuff.
Discount stores overall saw sales jump nearly 6 per cent last month, while those of full-price department stores declined. Consumers' use of discount coupons is starting to rebound after a 15-year slide. In June, the lowly Toyota Corolla became the best-selling vehicle in America, a spot held for more than two decades by the beefier (and pricier) Ford F-150 pickup.
Trading down is a common consumer reaction to economic ills. But this time around, the change has come unusually fast and may be touching on the broadest array of goods since the recession of the early 1980s. The combination of historically high fuel prices and soaring food costs, combined with falling housing and stock values and tightening credit, are severely damping the spending habits on which the US economy has long thrived.
The about-face in consumer behaviour could bring striking changes to the marketplace, as retailers revamp everything from the size of their stores to the way they stock their shelves, and may force manufacturers to trim niche products in favor of more reliably selling basics.
"There has been a major shift in thinking by shoppers," says Thom Blischok, head of consulting at Information Resources Inc, which tracks spending on consumer goods. "Consumers are moving away from availability, to affordability." Dunnhumby Ltd, a consulting firm that tracks shopping habits for many retailers and manufacturers, says 20 per cent of loyalty-card holders of its US and European retail clients are "radically" reducing spending, according to its analysis of their purchasing data.
The shift challenges a 20-year embrace of ever-pricier exotic foods and a widening array of luxury goods. In the 1980s, Americans warmed to designer labels, Egyptian cottons, and shopping as a form of entertainment.
Now, consumers are pessimistic that their ability to spend will improve any time soon. Two-thirds of Americans expect the current slump to last for several years, according to the latest survey of consumer expectations. Consumer confidence has dropped 38 per cent in the monthly index since its January 2007 peak, and last month 57 per cent of those surveyed reported their financial situation had worsened, the highest figure since the survey began in 1946.
At almost every income bracket, Americans are changing buying habits and deciding they can live without old favourites. Bob Swanson, a 48-year-old Houston software salesman, drove BMWs for most of the past two decades. But as the price of premium gasoline jumped, he traded his 8-cylinder BMW 540 for a more frugal 4-cylinder Honda Accord that he bought secondhand. "I went from an average of 14 miles a gallon to an average of 24," Swanson says.
Visits to department stores are down 6 per cent this year, down 7 per cent at office-supply stores and down 10 per cent at home-improvement retailers, says market watcher Nielsen North America, which tracks store traffic and spending. But the downturn has proved a boon for retailers at the bottom of the price scale. Family Dollar Stores Inc, a small, discount department-store chain, forecasts same-store gains of 4 per cent to 6 per cent for its fiscal fourth-quarter ending August 30. Dollar General Corp, another discounter, recently reported same-store sales jumped 5.6 per cent for the fiscal quarter ended May 2.
Trying to lure the newly frugal, big retailers and brand-name goods manufacturers are revamping their goods and promotional offers to suit the times, relying on increased efforts to track their consumers' habits. For instance, in Texas, grocer HEB Inc has begun stocking up on inexpensive fare-beans, rice and flats of eggs-toward the end of the month, as customers run out of money.
Wal-Mart says it is putting more multipack items on its shelves at the start of the month when many customers are flush from being paid, then switching to individual items that require smaller outlays later in the month.
Thursday, the nation's largest retailer reported that US same-store sales for the five weeks ended July 4 rose 5.8 per cent, Wal-Mart's highest monthly increase since May 2004. The big results for the June reporting period were partly attributable to temporary factors benefiting many discount retailers. Federal tax-rebate checks were trickling in, and there were two first-of-the-month days in the period, when many customers get paychecks or government payments and visit stores.
But Wal-Mart also returned to its roots at just the right time. Unlike other retailers, the discounter's less-affluent customers felt the pinch of rising energy and credit woes as early as 2006. Wal-Mart ultimately responded by cutting back on new-store construction and revamping its merchandise. It cut inventories and renewed its focus on reducing prices, just as the economy swooned.