In 2009, it hardly mattered whether you loaded up the truck with Costco
It's still tough out there
There's plenty of consumer research to back up that claim, but first, let's examine the question of a spending recovery from a wide-angle perspective.
What immediately comes to mind is that stock prices have risen like carnival balloons, which can't help but buoy consumer confidence. However, it's unlikely that the average investor has fully benefitted from the market's rise. From the end of Q1 2009 to the end of Q3, the S&P 500 climbed nearly 33%. Household net worth, on the other hand, gained a mere 6%. Presumably, the lag in part owes to investors' move out of stocks throughout 2009 and into bonds. Bond inflows recently made a record high.
Meanwhile, unemployment is even worse than it looks. And as for home prices, the latest S&P Case-Shiller numbers were no party. Ultimately, the housing market could stagnate for years, weighed down by a pipeline of foreclosures.
All told, it's difficult to see consumers charging off to the mall as they did in pre-recession days. Of course, the big-picture numbers don't always tell the whole story. On that note, let's go straight to the source.
Less is more, more, and more
In early 2009, leading consumer research firm IRI dubbed today's shoppers the "Downturn Generation." Below, I've highlighted key findings of the firm's consumer surveys:
It's all about the best deal. More than 65% of shoppers ranked price above convenience when considering brand-name purchases. That's bad news for brand-name big boys such as Procter & Gamble
(NYSE:PG), which look to boost profit with premium products. Nor are these two tidbits welcome news: Only 22% of surveyed shoppers target specific brands, while 46% are buying more private label or store brands than in the past. Of course, if you're Wal-Mart Stores (NYSE:WMT)or Kroger, the latter point has you hearing cha-ching.
Making it last. Consumers aren't just watching how much they pay for common products; they're also skimping on how much they use. Roughly half of those surveyed are trying to make cleaning products last longer -- and about a third of that group plans to continue the practice well into the future. New clothing is also trending out of style -- 70% of consumers are cutting back on purchases -- and more than half of those shoppers plan to keep a lid on spending. The money-saving work/play wardrobe, however, is on the rise. J. Crew's versatile items are a likely beneficiary here, while teen retailers such as American Eagle Outfitters
(NYSE:AEO)may not see positive trends emerge from the recession.
Keeping healthy. Consumers remain focused on health, but they're changing strategies, replacing doctor visits with Internet searches, and buying private-label medicines instead of branded OTC products. On the latter trend, CVS Caremark
(NYSE:CVS), whose vast store-brand offerings include OTC remedies, looks well-positioned to reap rewards. Consumers are also turning to nutrition to help avoid costly illnesses, which bodes well for the likes of Smart Balance's heart-healthy spreads and store-brand organics.
Perhaps the most noteworthy aspect of IRI's report is the assessment that many of the habits described above will persist into an economic recovery, much the way that Depression-era consumers remained conservative for years after the worst had passed. This forecast dovetails with consumer research conducted in 2009 by global consulting house McKinsey & Co, where half of consumers who were cutting back said they would keep a tighter rein on spending after the recession.
But doesn't this research reflect sentiment from when the economy was at its worst? Will consumers really carry through with their intentions to save more and spend less? Certainly, consumer confidence has risen markedly since March 2009, and a recent Consumer Reports survey reveals that shoppers exceeded their holiday spending budgets. Moreover, the National Retail Federation has called for a 2.5% gain in retail spending this year (the estimate assumes improved jobs and housing markets).
Personally, I do believe that spending will rise at least marginally, with those who previously made cutbacks by choice rather than necessity -- roughly half, according to McKinsey -- responsible for the bulk of the upward move. That said, I expect consumers to remain discriminating amid fierce product competition, which means that the consumer sector is unlikely to benefit evenly.
In particular, I'd keep an eye out for companies that are evolving their marketing strategies. Online advertising continues to gain in importance at the expense of traditional media, and even sellers of soap and cereal are now attempting to connect with consumers online. It's hard to imagine P&G or Walmart.com ever approaching the e-commerce presence of an eBay
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