The Great Retail Revolution
Rick Newman

 

No longer the Consumer Spending Habit
(c) Donna Grethen

Mainstream stores do a double take as consumers dramatically shift their spending habits

Hey, you. Yes, you -- the one shoving your wallet back into your pocket. Are you aware that you've been making retailers very uncomfortable?

A facade of calm may be returning to the consumer landscape as a thrashing recession finally subsides. But behind the cheerful window displays are deeply worried retail executives who fear that shopping may never be the same again.

Procter & Gamble, for instance, has begun a limited rollout of Tide Basic, a discounted version of its marquee laundry detergent. The move violates a core principle of traditional marketing: Never undercut your own products. But P&G fears it may lose customers altogether if it doesn't offer cheaper alternatives. That reflects a compression of the entire retail taxonomy, as upscale merchants like Saks and Nordstrom slash prices and offer cheaper goods, mainstream stores like Macy's and JCPenney lose customers to discounters, and millions of consumers seek used goods instead of new ones -- or simply go without.

Typically during recessions, consumers reduce spending, then resume their former lifestyles once the economy revives. That's not happening in the aftermath of this recession.

With jobs still scarce, Americans are in a gloomy mood. Polls by Gallup show that about half of Americans have cut spending, and one third plan to cut back permanently. That would mark a consumer revolution. "We haven't seen this before," says Dennis Jacobe, chief economist for Gallup. "It's the only time this has happened since the Depression. We've had a big shock. I think this will stick."

America's consumer-industrial complex has an arsenal of tools for prying money out of consumers. But they're based on the dated premise that material stuff represents success. Now, even consumers who can afford to keep spending are cutting back.

Joe and Deb Pasquale, for example, are wealthy by most people's standards. The childless, two-income couple lives in a 6,500-square-foot home with five bathrooms and a walnut-paneled library outside of Nashville. Yet over the past year, they've stopped eating at restaurants, dialed back their cell-phone and cable-TV service, and replaced their Infiniti SUV with a used Dodge. They sell unused stuff on eBay, and Joe, a music producer with strong technical skills, earns spare cash by helping neighbors install TV equipment or computers. They don't really need the extra money, but like many Americans, they're spooked by the turbulent economy and determined not to get blindsided by ugly surprises. Deb lost her advertising job in 2008, and although she found another one three months later, the lower pay reduced household income by 30 percent. "We don't have the problems a lot of people have," says Joe Pasquale, "but we want to keep our home. So we've cut out other stuff. We can do without opulence."

The bumper sticker for this trend is the "new frugality."

But there's more going on than just thriftier spending. True, Americans are saving more and spending less as they pay down the debt that fueled a 25-year spending spree. Despite widespread anxiety, however, Americans are still instinctively optimistic.

They're finding more satisfaction in less stuff, relying more on themselves, and developing healthier consumption habits. "Consumers are not going to give up on their aspirations to a better life," according to a recent study from the Futures Co., a market-research firm. "They will just rechannel these ambitions to fit the context of the marketplace."

The biggest change may be the way we define prosperity

After a decade-long run-up in homeownership -- a longtime benchmark of middle-class success -- more people are renting, suggesting that the "ownership society" is unwinding (or never really existed).

The homeownership rate peaked in 2005 at about 70 percent of households. That could sink to the low-60s within a decade and bring lasting changes to the markets for furniture, appliances, building materials, cars, and other industries linked to housing. And the housing bust has wiped out trillions of dollars in household wealth, which is probably gone for good. For a long time, many Americans will feel, and actually be, less wealthy.

A make-do mentality seems to be realigning retail winners and losers.

Sales of most big-ticket items are down, for example, but the Aaron's rent-to-own furniture chain has been thriving. New-car sales have plunged, but the demand for used cars has surged, driving up prices. About 18 percent of consumers have switched from name brands to store brands over the past two years, according to the consulting firm McKinsey -- and many of those shoppers like the cheaper products well enough that they plan to stick with them. Other surveys show that more people are cooking at home, making their own coffee, and walking or biking more instead of using a gym.

Cost-conscious chic

Shrewd shopping may be necessary for many consumers on reduced budgets, but it's also becoming somewhat fashionable. Discounters like BJ's and Costco already are thriving, and consumers seem poised to further reward merchants that make them feel savvy, rather than shabby, for economizing. The Futures Co. predicts that consumers will punish companies that use slick come-ons or gamesmanship to hawk their wares, while flocking to "risk-free shopping zones" that don't bombard them with enticements meant to swell the shopping bag.

Without a doubt, many people are cutting back out of sheer desperation and are finding little redemption in the process. But others, not as close to the edge, are finding that concessions are less grueling than they anticipated, and sometimes even rewarding. "I shop in my closet when the urge hits me to buy something new," says Paige Hodges of Los Angeles, who lost her job as an executive assistant at a real estate developer last July. "I always find a little treasure that I forgot I had."

Americans are also rethinking technology, with many deciding they don't need multifunctional cellphones or fancy new features with dubious usefulness. That, too, could change some long-held tenets of consumer marketing. Technology typically advances a lot faster than the people who use it, so marketers must convince shoppers that they need something that they didn't even know existed. As consumers simplify their lives, that's becoming a tougher sell. "When I could afford it, I always felt pressured to buy the latest software and gadgets," says Kathryn Husby of Plantation, Fla. When job and health issues curtailed the family income, she and her husband cut back to bare necessities. That meant sticking with her old phone and computer, with no need to learn how to use a new gizmo every few months. "I'm happier than I've been for many years," she says. "I feel like I'm in charge of my life instead of multinational corporations telling me what to consume."

A little belt-tightening can be spiritually healthful as well

When Russ and Deborah Merchant lost their home to foreclosure in 2007, friends rallied and helped them downsize into a smaller rental. As they cleared out their closets, they were astonished to discover hundreds of items they had never used and didn't need. They cut back purchases to essentials and for a year gave away more stuff than they bought.

Meanwhile, they got smarter about managing money. Russ started a real estate investing company on the side, and he recently quit a safe government job to work full time at his start-up. "We keep being amazed at how having less stuff, with no deprivation, actually gives us better quality of life," says Deborah. "We've gained emotional and spiritual maturity."

If only they could sell that at the mall.

Available at Amazon.com:

The Next Hundred Million: America in 2050

 

 

 

 

The Great Retail Revolution | Rick Newman

 

(c) 2010 Rick Newman