Want vs. Need
Job growth seems to be moving in the right direction, the housing market appears to have turned a corner and equity prices are holding up — all good news for consumers still smarting from the 2007-09 recession. Still, the loss of the payroll tax cut, fluctuating gas prices and the uncertainty that surrounds the debt ceiling continue to give shoppers pause.
Confronted with seesaw economic indicators, shoppers’ spending has become more of a balancing act than a belt-tightening exercise. The latest round of consumer research conducted for STORES by BIGinsight.com finds that while adults 18 and older refuse to give up Internet service, basic cell phone and cable connections and discount shopping for apparel, they’re willing to rein in spending on items like high-end jewelry, gourmet foods and fine dining.
The most recent research marks the fifth consecutive year of tracking what shoppers consider to be untouchable (suggesting they cannot live without it) and what they perceive to be expendable (meaning they can live without it). The study, based on feedback from more than 8,000 consumers, reveals that after four years of scrimping, shoppers are beginning to loosen their purse strings just a bit.
A year ago, at least 90 percent of respondents cited 10 items they could live without, including manicures/pedicures and high-end cosmetics. This year those percentages are not quite as eye-popping: 86 percent consider a manicure/pedicure to be expendable and 88 percent deem high-end cosmetics to be something they can live without. Still, those figures are lower than the 90 percent and 92 percent, respectively, who earmarked these items as nonessentials 12 months earlier.
Another item that consumers are slowly adding back into the budget is gourmet coffee. Eight-five percent of consumers considered their daily cup of gourmet coffee to be expendable when the survey was published in February 2012; this year that percentage slipped to 80 percent.
Cautious with a side of splurge
“We’re not seeing big changes in the way consumers are spending, but as an uncertain economy becomes a part of everyday life we are finding that they’re cutting themselves some slack now and then,” says Phil Rist, executive vice president of BIGinsight.com. “Recovery is still not a word that consumers feel comfortable using, yet they refuse to live their lives mired in the doldrums. Our data found that shoppers’ practicality rose in December, with nearly half of the consumers we polled describing themselves as becoming more practical. Shoppers are cautious, but every once in a while it’s okay to treat yourself to a gourmet coffee or a new smartphone.”
The newest STORES data compiled in early December — before the Newtown tragedy and as the economy teetered on the edge of the so-called fiscal cliff — provides a straightforward look into consumers’ spending outlook and dices up the data by age and income. Overall, 54 percent said they had cut back on the various items cited in the survey, 40 percent said they had not and 6 percent indicated they were planning to curtail their spending soon — a familiar resolution around that time of the year. It’s interesting to note that women claimed to have cut back more than men (58 percent vs. 50 percent) and among those aged 55 and older, 46 percent indicated they had not cut back on any of the items mentioned as part of the survey — a nod to the maxim “age has its privileges.”
Along with indicators that provide hopeful signs for retailers, other trends emerge from the findings. Internet and cable/satellite services remain central in the lives of consumers: Since STORES first reported on consumers’ expendable vs. untouchable shopping sentiments in February 2009, eight of 10 have cited Internet service as untouchable.
A steadily growing percentage of consumers consider upgraded mobile devices like smartphones, tablet computers or e-readers to be “untouchable.” Just two years ago, 23 percent of all adults described these devices as untouchable; that figure has climbed to 32 percent.
When it comes to eating out, fine dining continues to be lumped in the expendable column while eating at fast food and casual sit-down restaurants has remained relatively constant. In each instance roughly 30 percent of consumers consider this line in their budget to be untouchable. Could it be the emphasis that chains like Applebee’s and Chili’s have put on creating value-oriented items or the broader mix of calorie-conscious offerings? Chances are it’s both.
When STORES first partnered with BIGinsight.com in late 2008, the country was reeling from a financial crisis that crippled the banking and mortgage industries and had a ripple effect across all businesses. Feeling the strain, shoppers began clamping down on spending, but as the Great Recession ebbed, the expectation was that spending would return to previous levels. Instead, shoppers adopted a “new normal.”
STORES/BIGinsight.com data tells the story. Seven out of 10 respondents consider vacation expendable — a percentage that has remained virtually unchanged over the five-year period. The same can be said for spending to join extra-curricular leagues or plunking down a little extra for organic foods — the former has held at about 84 percent, the latter around 83 percent.
Still, the current round of research offers a few bright spots — indicators that consumers are beginning to adjust their spending on a handful of items. Specialty shopping for apparel may be making a slow but sure comeback, and the number of respondents who now count magazine subscriptions and satellite radio to be untouchable is rising.
One group that is especially interesting to study is adults aged 18 to 34. Five years ago the youngest members of this cohort were still in middle school, watching their parents manage the financial mayhem; older members of this segment were struggling to find work and hold on to their jobs in the face of massive layoffs. Under pressure regardless of where they sit on the age spectrum, their view of what’s untouchable and what’s expendable often varies from older generations.
An upgraded mobile device is considered untouchable by 44 percent of 18-to 34-year-old consumers — far more than either 35- to 54-year-olds and those 55 and older. Luxury handbags, high-end cosmetics, department and specialty store shopping and movie/theater tickets are also more likely to be coveted by the youngest cohort.
It’s worth noting that 27 percent of this crowd considers Internet service to be expendable — a higher percentage than the other age brackets — yet nearly a third (30 percent) deem on-demand video steaming to be untouchable. With upgraded mobile devices loaded with 3G, 4G and Wi-Fi capabilities becoming more pervasive, young people think differently about connecting, and their entertainment preferences are reshaping how they consume media.
It will be interesting to see how this cohort makes its mark on retail in the years to come. While it’s encouraging to see that they’re more inclined than others to consume high-end goods and services, they’re also of the generation that embraced Zipcar, is partial to sharing everything from apparel to subscription passwords and has no qualms about buying used goods from Craigslist. Keeping them spending in the years to come is likely to require more than just trendy looks and value pricing.
And then there’s the 55 and older generation — a cohort that remains one to watch, particularly as Baby Boomers extend their powerful influence. Along with being more likely to think of vacation as a “must have,” the 55-over crowd is also more partial than younger generations to fast food eateries, casual sit-down restaurants, hair cut/color and basic cell phone and cable services. Age and life experience may be a factor in the charitable nature of this age group: 42 percent of respondents say charitable contributions are untouchable.
As for the differences between men and women, the STORES/BIGinsight.com data measures variations between the two and finds that in many instances their outlook on what’s expendable and untouchable are in harmony.
Some of the items where the differences are more pronounced include hair cut/color — 43 percent of women consider this untouchable vs. 38 percent of men. Women are more likely to place charitable contributions, discount apparel shopping, basic mobile/cell phone service and Internet in the untouchable column. Meanwhile, the opposite sex demonstrates a stronger proclivity for new jeans, new shoes, movie/theater tickets and premium cable/satellite TV. Male respondents are also more inclined to consider vacation untouchable (31 percent, compared with 25 percent) and more likely to favor satellite radio, with 18 percent citing it as untouchable vs. 12 percent of the women polled.