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Consumer Trends

Loosening the Reins

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This article was published in the February 2015  issue of STORES Magazine

Consumers are spending slightly more, but remain cautious

Trying to keep up with the running commentary on the health of the U.S. economy and the state of consumer confidence can trigger a bout of vertigo.

There are pundits who feel that lower gas prices will translate into increased spending in other categories. They’re quick to point to the University of Michigan’s record-high consumer confidence report — along with gains in employment and recent rallies on Wall Street — as indicators that shoppers may be on the cusp of a spending bender.

Others contend that while the economy is indeed on the mend, it’s far from setting records. In late December, former Federal Reserve Chairman Alan Greenspan told Bloomberg News, “The United States is doing better than anybody else, but we’re still not doing all that well. We still have a very sluggish economy.”

STORES’ latest impression of U.S. consumers’ attitudes toward shopping syncs more with Greenspan and less with hype. Prosper Insights & Analytics’ seventh installment of “Expendables vs. Untouchables” — exclusive research compiled for STORES  — finds that consumers have loosened the reins on their budget just slightly, yet they remain frugal overall, particularly when it comes to spending on items like high-end jewelry and luxury handbags.

One thing is irrefutable: Consumers want to be connected 24/7 via Internet, mobile phone and smart devices — and the data suggests they’re willing to cut back on just about everything else to be sure they’re always “on.” A whopping 79 percent of adults age 18 and over consider Internet service untouchable, and mobile/cell phone service — basic or equipped with all the bells and whistles — also tops the list of items they say they cannot live without.

“There was a popular expression from some time ago, suggesting the only way someone would give up an item was if it was pried from their cold, dead hands. That’s the sort of predilection consumers are showing for their mobile phones and devices,” says Phil Rist, executive vice president at Prosper. “The data shows that U.S. consumers are still cautious about spending on most categories, but when it comes to technology there’s no sign of them cutting back.”

While this latest round of data doesn’t show dramatic across-the-board shifts in consumers’ spending intentions, Rist points to nuggets in the survey that suggest Americans are feeling better about the economy. In 2010, 90 percent of surveyed consumers considered fine dining at a sit-down restaurant to be expendable; that figure has dropped to 85 percent. Similarly, the percentage of consumers who now deem a vacation to be untouchable has inched upward.

“The changes are not eye-popping but there’s no question that the needle is starting to move,” Rist says. “A year ago when we asked how the current state of the U.S. economy was affecting household spending, 54.7 percent indicated that they were spending less overall. This time that number has dropped to 45 percent. Consumers are feeling better — they’re still cutting back on discretionary items like new jeans and new shoes, but the cuts are not as deep as they were a few years back.”

The consensus from an economic roundtable held at NRF’s annual convention last month was that consumer spending will improve moderately in 2015 as a result of lower gas prices and mild improvement in wages and salaries.

 “We’re looking at an economy that should expand in 2015. There’s no question that consumers have a bit more confidence, but this is a consumer in transition,” said NRF Chief Economist Jack Kleinhenz. “We’re seeing an uptick in discretionary shopping among higher-income consumers, but medium- to lower-income shoppers are still cautious. … It’s taken a lot longer to recover from the financial crisis than many anticipated.”

Kleinhenz warned against putting too much emphasis on the role of declining gas prices. “It’s difficult to predict the effect on spending. There will be some who apply the money saved to other purchases and others who apply it to savings. … Right now the decline in gas prices is akin to a tax cut — it seems like a one-time event. It’s nice, but it’s not enough to change spending noticeably.

“If lower prices become extended, then we’re likely to see overall spending benefit,” he said.

Always on
Consumers’ desire for sophisticated handheld technology has risen steadily in the seven years that STORES and Prosper have conducted the survey, a nod to the need for retailers to continue to deliver the latest and greatest gadget. In the past two years the influx of Internet of Things devices like the Fitbit physical fitness tracker and the Nest thermostat have only managed to feed their yearning. If mobile payments take root, as many industry watchers expect, Internet-enabled services and devices will not only remain untouchable — they may become indomitable.

Upgraded mobile devices, defined in the survey as smartphones and iOS or Android tablets, are considered untouchable by 41 percent of those polled — up from 35 percent a year ago and 23 percent in 2010. Similarly, premium cable/satellite TV, often accessed using a mobile device, is judged to be untouchable by more than three in 10 respondents. And on-demand video streaming from providers like Netflix, byproducts of the always-on/always-connected lifestyle, is reasoned to be an untouchable budget item for just over one quarter of the consumers surveyed.

When the relative newness of those services is considered (STORES didn’t even track them when the research first started), the fact that 26 percent cannot live without them is impressive. In fact, there are more consumers who consider on-demand video streaming untouchable than a new pair of shoes, a gym membership or their daily cup of gourmet coffee.

What consumers say they can live without, and how they actually decide to apportion their budgets, can vary. Charitable contributions are regarded as expendable by 65 percent of respondents, and 81 percent say they can live without their daily cup of gourmet coffee. Still, USA Today reports that Starbucks alone sells 4 million coffee drinks per day and charitable contributions have been steadily climbing since 2009, boosted by online giving.

He said, she said
In most cases men and women are on equal footing when it comes to items in the budget that they can and cannot live without. Over 80 percent of both sexes judge organic foods to be expendable, and they feel the same way about lawn service and fast-casual restaurant dining.

Where do their views differ? Forty-five percent of the women polled say they can’t live without haircut/color services, compared with 37 percent of men. Interestingly, while one might infer the opposite, men are more inclined to consider a new pair of jeans or shoes untouchable by about 5 percentage points. The guys are also more likely to claim that they can’t live without magazine subscriptions, satellite radio and extracurricular leagues (i.e. sports like softball and bowling).

Overall, half of the women said they had cut back on one or more of the 35 items listed; that contrasts with 40 percent of men who say they’ve tightened their belt when it comes to spending. But they are singing from the same hymnal when it comes to identifying which items they’ve cut back on: Recreational spending, including dining out at various types of restaurants, movie/theater tickets and vacations, top the list for both genders.

When asked whether or not the current state of the U.S. economy was affecting household spending plans, the disparities between the sexes was once again apparent with 49 percent of women indicating that they’re spending less overall, compared with 41 percent of men. Women are more inclined to engage in comparative shopping online and via newspapers and circulars; they are also using coupons more often (36 percent versus 27 percent of men) and shopping for sales more regularly (40 percent versus 30 percent). Moreover, women are spending less on apparel (27 percent versus 17 percent) and dining out less frequently (32 percent versus 23 percent) than men.

Retailers, who often tailor marketing messages to women, acknowledging their role as the household’s “chief purchasing officer,” may want to target a portion of their future promotions to men, who appear to be more willing to dip into their wallets.

Generational divide
There are multiple generations shopping store aisles and surfing websites and apps, and there’s no question their attitudes toward what they can and cannot live without vary broadly. The survey found some of the more striking differences in attitude prevail among the youngest demographic segment in the survey — those aged 18 to 34. They’re more inclined to label organic and gourmet foods untouchable; likewise they are more liable to treat themselves to a facial, high-end cosmetics and a luxury handbag.

Not surprisingly, this younger cohort is most passionate about technology; more than half — 52 percent — consider an upgraded mobile device like a smartphone to be an untouchable expense. And no other age group even comes close to the predilection they demonstrate for on-demand video streaming. A commanding 40 percent deem this budget item to be untouchable, compared with 24 percent of 35- to 54-year-old consumers and 15 percent of the 55-and-over group.

Those in the 35- to 54-year-old age cohort are the most likely to say they are spending less overall due to the current state of the economy; 48 percent are so inclined, compared with 42 percent of the younger set and 44 percent of those 55 and older. They’re also doing more comparative online shopping, buying more practical gifts or necessities as gifts and cutting back on small luxuries like high-end cosmetics and trips to coffee shops.

Among the changes that group has made in the last six months are a greater focus on what they need rather than what they want (45 percent), a commitment to become more budget-conscious (33 percent) and a promise to spend more time with family (19 percent.) In the next three months 38 percent aim to pay down debt, 29 percent have set their sights on increasing savings and 30 percent intend to decrease overall spending.

But here’s the underlying message: The U.S. shopper remains frugal. So, while the economy is getting better overall and many shoppers are feeling better about it, they are still very circumspect about when, where, how and what to buy.


Robin M.
"There are pundits who feel that lower gas prices will translate into increased spending" No need to worry about that, low gas prices are already over. No, "massive savings" that I have seen. People in USA still have credit card debt, mortgages & school loans... not sure if low gas prices were ever a cure all to low consumer spending.