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Retail Trends

Adjusting to the New Normal

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Most retailers were upbeat about holiday sales. Shoppers’ spending rose more than in recent years, bolstered by larger discounts from retailers and a fair amount of pent-up demand, and many industry watchers were quick to suggest that consumers might finally be ready to open their wallets, reversing the tight-fisted habits they’d developed over the past three years.

Before anyone pops the cork on their champagne bottle, however, they might want to consider the latest findings of exclusive consumer research conducted for STORES by BIGresearch, which indicates that spending patterns have remained largely unchanged over that time period.

Each December since 2008, STORES and BIGresearch have surveyed more than 5,000 adult consumers, asking them to tell us what they can and cannot live without. Despite economic starts and stops — including the official end of the Great Recession in June 2009, concerns about a double-dip and hopeful predictions of a return to “normal” spending — this year’s responses aren’t significantly different than what shoppers were telling us three years ago.


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Shifting definitions
Personal indulgences continue to be perceived as expendable, yet the latest round of data shows that 82 percent of U.S. consumers consider their Internet service to be the top item they cannot live without — evidence of an ongoing shift in the way Americans spend their time and of its importance as a vehicle for consumers to get news and interact with one another, particularly through social networking sites like Facebook.

Sixty-four percent of adults ages 18 and older say basic cell phone service is a must, and 61 percent refuse to be without cable/satellite TV. Buying new clothes at a discount store, staying well-groomed and scarfing down an occasional fast food burger or burrito also rank near the top of the list of things consumers consider untouchable.

An analysis of the products and services that respondents feel they can live without reveals a more extensive inventory: Nine in 10 consumers display an ongoing willingness to do without $300 handbags (91 percent) and white-glove dining (90 percent). And, if it’s true that beauty comes at a price, it appears shoppers are less willing to pay it: 91 percent are willing to sacrifice high-end cosmetics, 89 percent will forego a facial and 88 percent say they can live without mani/pedi services.

Interestingly, of the 36 product/service categories consumers were asked to consider, at least 70 percent of those polled indicated a willingness to forego three-quarters of them. Some examples: 84 percent say they can live without gym memberships; 83 percent are willing to give up their daily cup of gourmet coffee; and 80 percent are willing to sacrifice movie/theater tickets.


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“Consumers have adjusted to the so-called ‘new normal’ — they’ve adopted a more responsible approach to spending,” says Phil Rist, executive vice president, strategic initiatives for BIGresearch. “There are a handful of things they won’t give up, but nearly everything else is dispensable — unless shoppers make a conscious decision to break their predetermined budget rules.”

Holiday spending levels “provided retailers with a merry Christmas, but there could be clouds looming,” Rist warns. “Unemployment is still high, the housing crisis has not abated and gas prices are rising. Any one of those things has the potential to bring the recent spending spate to a swift halt.”

The events of late December and early January indicate that Rist’s read on consumer sentiment is on target. Just days before Christmas, President Obama signed into law an extension of the Bush-era tax cuts, ensuring that most Americans wouldn’t see a reduction in take-home pay. Days later came the sobering news that a fair chunk of that “savings” would likely be spent at the pump. Several news outlets reported that average gas prices rose 42 cents in 2010 — and are expected to continue rising through 2011. One expert went so far as to predict that the nation could be facing gas prices of $5 per gallon within two years. (See pg. 21 for consumer reactions to fluctuating gas prices.)

Then, in mid-January, the Reuters/University of Michigan consumer sentiment index’s preliminary reading slipped from 74.5 to 72.7, an indication that consumers may be feeling a tad more pessimistic as the New Year begins.

Call it a comeback
Still, 2010 provided some glimpses of consumer optimism. Case in point: the iPad. Apple sold 1 million units of the device in its first 28 days on the market and — according to some reports — nearly 14 million by the end of the year. Given the runaway success of the iPad, the hype around on-demand video streaming and the buzz around topics like gourmet food and a return to indulgent spending on items such as gold and gemstone jewelry, each was added to the 2010 expendable/ untouchable list.


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Twenty-three percent of all adults deem an upgraded mobile device — smartphone, laptop, iPad, eReader, etc. — to be “untouchable”; 16 percent have become so attached to on-demand video streaming from the likes of Netflix and Blockbuster that they consider this budget line item something they can’t live without.

Gourmet food, on the other hand, remains something 89 percent of those polled say they can live without, and high-end jewelry (91 percent) is even more likely to be on the budget chopping block.

Shopping for apparel appears to be making a slow but quantifiable comeback since the first expendable/untouchable research was conducted three years ago. More than half of those polled (52 percent) cite discount shopping for apparel to be something they cannot live without; only 43 percent felt that way when the data was first compiled in 2008. Similarly, 25 percent consider department store shopping “untouchable,” compared with 19 percent who expressed that sentiment three years ago.

Sixty-two percent of respondents indicate that charitable contributions are “expendable,” a figure that is on a par with last year. While it remains high, the data suggests that charitable contributions are making a slow but steady comeback from 2008 levels (68 percent).

The spenders
The research suggests that the 18- to 34-year-old age group behaves differently from other demographics, displaying stronger sentiment than those 35 and older for numerous products and services and a greater willingness to spend. For example, this youngest demographic is more likely to consider organic foods, gourmet foods, a daily cup of gourmet coffee and fine-dining “untouchable” than the group as a whole.

It may seem obvious how important this demographic considers smartphones and the latest tech devices to be, and the research leaves no doubt. Nearly half (48 percent) say that mobile phone service (equipped with text, video and Internet) is something they cannot live without. Among adults 35 to 54, that figure drops to 31 percent — and halves again to 16 percent among shoppers ages 55 and older. Similarly, less than a quarter of all adults (23 percent) believe devices like laptops, an iPad or an eReader are products they cannot live without, compared with 36 percent of 18- to 34-year- olds.


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The vast majority of survey respondents (82 percent) characterized Internet service as untouchable, but when the data is broken down by age, it suggests an interesting shift may be in the works. Eighty-six percent of those 55 and older and 82 percent of the 35- to 54-year-old respondents consider Internet service something they cannot live without; among the youngest demographic, that figure drops to 76 percent — an indicator that as Wi-Fi becomes more widely available, the value of full-fledged Internet service begins to decline.

Survey respondents were also asked if they have cut back on any of the items included on the expendable/untouchable list: 70 percent said “yes,” 24 percent said “no” and 6 percent indicated plans to begin curtailing shortly.

What have they cut back on? Among men, 62 percent have reduced spending on fine dining, and 55 percent have reduced casual sit-down dining at places like Applebee’s and Olive Garden. Among women, 57 percent have cut back on buying new jeans, 54 percent on movie and theater tickets and 45 percent have reduced the number of times they head to a salon for a haircut or color.