Wondering how consumers are coping in such a troubled economy? Look at what's selling instead of what's tanking. As consumers muddle through...
CHICAGO — Wondering how consumers are coping in such a troubled economy? Look at what’s selling instead of what’s tanking.
As consumers muddle through all that is plaguing the economy, they have battened down the hatches and sharply shifted their spending habits, turning to money-saving options that run the gamut from transportation to health as they find ways to pay for dramatic increases in gasoline and food.
What emerges is a new paradigm of consumerism that some experts believe will live long after the economy recovers.
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“Suddenly consumers are focused on buying what they have to have as opposed to buying what they want to have,” said Howard Davidowitz, chairman of Davidowitz & Associates, a New York retail consulting and investment-banking firm.
“This is a permanent change for Americans, who will face a declining standard of living over the next 20 years,” he added.
Consider this: Truck and SUV sales are losing air quickly but sales of hybrids and fuel-efficient car are holding their own. Sales of scooters, which can cover twice as much ground on a gallon of gasoline as America’s favorite Toyota Camry sedan, are gaining as fast as prices at the pump.
Sales at department and specialty stores have been in the dumps but drugstores and most deep-discount stores are in rally mode as more people opt for stores closer to home and those perceived as value giants.
Meanwhile, Jo-Ann Fabrics delivered surprisingly strong first-quarter earnings after a stretch of dismal results, thanks in part to strong sales of sewing notions, quilting and craft items.
Same is true for Michael’s Arts and Crafts, suggesting consumers are going back to the basics as they spend more time at home.
At the grocery, the soaring costs for chicken, fresh strawberries and beans are leading consumers to the frozen- and canned-foods aisles where the prices are more palatable for a family of five. Even Spam is making a comeback.
“This is impacting every single American right now,” said Dan Houston, president of Principal Financial Group. “No one’s immune.”
Phil Rist, a principal at Ohio-based BIGresearch who has been appraising consumer attitudes and patterns for some time, agrees with Houston and has consumer surveys to back it up. “Even the rich are bitching,” he said.
Yes, even the rich are joining the cut-the-corners club, according to reports. When BIGresearch asked if they had cut down on going out for meals this year, 36.2 percent of those with household incomes over $100,000 said they had — up 13 percentage points from a year earlier.
The Food Marketing Institute recently reported that 83 percent of consumers are eating home-cooked meals in, of all places, their own homes at least three times per week. The institute also found that wealthier households are more apt to buy food to make at home than lower-income households, which tend to pick up cheap burgers and fries at fast-food restaurants.
The latest update of the Principal Financial Well-Being Index found that more Americans are pinching pennies.
Since April, 56 percent of workers and 55 percent of retirees told Principal they have pared spending because of the economy’s woes. That’s significantly more than workers, at 38 percent, and retirees, at 32 percent, who said the same thing only six months ago.
More than two-thirds of both groups said they’re forking over about $100 more a week on groceries compared with last year. About half are eating out less and stocking up on store or generic brands, while more than one-third are giving up convenience and premium items for cheaper alternatives.
Another one-third is stalking multiple stores in search of sales.
But what are they buying? According to Information Resources, which uses sales receipts of consumer products as a measure of shopping behavior, they’re forgoing fresh fruits and vegetables in favor of the frozen varieties because they’re cheaper.
Don’t confuse that with frozen prepared foods. They’re shunning those to cook from scratch, but using the frozen vegetables, fruit and meats instead of the fresh products.
In the last year, sales volumes of frozen pizza fell 3 percent while receipts for frozen dinners and entrees dropped 4 percent. Yet sales volumes of frozen vegetables rose higher by 4 percent while frozen poultry sales jumped 8 percent.
Sales of Spam — the shoulder-pork-in-the-can luncheon meat — are up 10 percent amid a price increase and were a big contributor to parent company Hormel Foods’ second-quarter profit growth.
“We’re still seeing very robust sales,” Chief Executive Jeff Ettinger said.
Consumers are also turning to analgesics and cold medicines to treat ailments on their own rather than pay for a doctor’s visit. Sales of thermometers, for example, surged 8.3 percent in the last year.
“We’re in a transformation from a real-live, in-your-face consumer perspective,” said Thom Blischok, president of IRI Innovating and Consulting in Chicago. “People won’t stop using toilet paper, but they will stop using other products.”
Blischok sees three major consumers trends that vary by income. Those making under $50,000 a year are redefining what goes into their shopping carts, choosing hot dogs instead of steak.
“They’re finding ways to stretch the meal dollar by going back to just the essentials,” he said.
The mid-tier consumer in the $50,000 to $100,000 income range is “selectively deselecting” in what Blischok called a “substitution strategy.” They’re choosing to buy cheaper wines and to swap out bottled water for tap with a purifier, he said.
Those earning $100,000 and above are doing something similar in what Blischok labeled “de-prioritizing.”
“These people are asking themselves, ‘Do I really need a $100 bottle of wine? Wouldn’t a $40 bottle do,”‘ he said.
All income groups are also switching to “affordable indulgences,” he said. Rather than opting out of ice cream, for example, many consumers will get a quart instead of a half gallon, or they’ll decide to buy coffee grounds to brew at home rather than buy Starbucks drinks daily.
Among the more disconcerting findings in a recent IRI survey was that one-third of consumers said they will buy fewer healthful products because they’re more expensive. Forty-six percent of those were earning $35,000 or less.
Consumer confidence sank to a 16-year trough in May, inflation expectations touched an all-time high and spending intentions were scaled back for most categories, according to the latest economic data. But consumers planning to buy new TVs hit a fresh high, further underscoring their desire — or plain need — to find entertainment at home.
David Rosenberg, Merrill Lynch’s chief economist in North America, thinks nesting has become a trend.
“In order to get from point A to point B without spending $75 filling up the tank, households now seem bent on cocooning by staying home to watch television rather than drive to the local theater and shell out more than $11 to watch a film — and an extra $5 to get there,” he said.