Consumers in the U.S. are making changes

Every economic downturn changes shoppers in some way. But this time, experts say the new behaviour–fuelled by higher gas and food prices, tightening credit and a slumping housing market–are the most dramatic and widespread they’ve seen since the mid-1970s. So retailers, marketers and investors are all trying to figure out which habits shoppers will keep […]

Every economic downturn changes shoppers in some way. But this time, experts say the new behaviour–fuelled by higher gas and food prices, tightening credit and a slumping housing market–are the most dramatic and widespread they’ve seen since the mid-1970s.

So retailers, marketers and investors are all trying to figure out which habits shoppers will keep and which will they drop when the economy recovers. Will the people who switched to store-brand ice cream go back to premium brands? Will shoppers return to department stores or keep looking for labels at T.J. Maxx?
“We are looking at stuff that reminds me of the 1970s,” said Patricia Edwards of investment manager Wentworth Hauser and Violich. “Americans have seen a huge amount of their balance sheet evaporate. The effects will be more lingering.”

Wendy Liebmann, president of WSL Strategic Retail, says people’s new spending patterns are forcing companies to change the kinds of products they sell and tweak their marketing to appeal to cost-conscious shoppers. She points to the last big recession of the early 1990s that helped trigger a fundamental shift in retailing as affluent shoppers started buying at discounters as well as upscale stores.

According to a survey released last week by market research company Nielsen Co., which tracks consumer habits, about two-thirds, or 63%, of consumers are cutting spending due to rising gas prices, up 18% from a year ago.

According to the study, which queried nearly 50,000 consumers by email during the first week of June, 78% are combining shopping trips and 52% are eating out less often. Consumers are also cutting more coupons, doing more of their shopping at supercentres and buying less expensive brands, the survey found.

A rebounding economy may let some consumers revert to their old ways–like people who switched to smaller cars when times were hard in the 1970s but flocked to sport utility vehicles when gas got cheap again. But with more economists believing that the current woes will last well into next year, many think the underlying frugality will linger.

Marian Salzman, chief marketing officer for public relations agency Porter Novelli, cites a “Depression mentality” that’s making people “rethink their optimism in the economy.”

The widening gap between discounters and mall-based apparel sellers was evident in monthly retail sales figures released last week. The International Council of Shopping Centers-UBS tally of 38 stores found that same-store sales at discounters rose 5.1% in June and 9% at wholesale clubs. Discount giant Wal-Mart posted a robust 5.8% increase, its best June performance since 2002.

At department stores, though, same-store sales–or those at stores open at least a year–dropped 4.1%.

“People are spending money on food and the products they need to sustain life,” said Todd Hale, senior vice-president at Nielsen.

He noted sharp declines in visits to clothing, office supply and hardware stores. He also pointed out that sales of store-brand products in grocery items are up 9.1% for the year ended April 19, while sales of branded products rose a more modest 3.9%. More than half the sales growth from store label grocery items is from dairy products like milk and cheese, an area that has seen soaring inflation.

Liebmann says Americans are trying to take “control of the little things,” like mending socks or buying more store-brand food, because they can’t control the big things like gas and food prices.

Plenty of stores that have benefited from shoppers’ woes are hoping to retain them when the economy rebounds.

Andrea Thomas, executive vice-president of private brands at Wal-Mart, thinks many shoppers will stick with store labels since the quality has improved so much. Overall, Wal-Mart expects to retain the affluent customers when the economy recovers because it has made improvements in its stores and customer service.

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