Opinion: Consumers changing
24th Dec 08, 10:19am
By Neville Bennett When a friend said business is booming in classy womens' second-hand clothing stores - "you have to wade past the BMW's and Range Rovers" - I began to wonder if the slump is changing consumption. Can markets change culture? The best insights would be those brilliant market researchers in the world's capitals who study preferences and structure stores accordingly. I respect the discipline because as an undergraduate, I seemed to spend weeks of lectures with the brilliant Professor Oscar studying preference, and constructed complex charts with different equilibriums for beer and chocolate. The slump has encouraged shoppers to seek higher value for their money. In Britain, where 19 million people, (that is practically half of the working age population!) turn to price-comparison websites to check the best deals on the web; sites like moneysupermarket.com ( similar to NZ's interest.co.nz) confused.com, and gocompare.com. Belt tightening Perhaps these people are stimulated by British newspapers which have a very strong "money" section, that urge readers to find the best deal, save on travel or on household bills. The sites are growing in popularity because Britons are tightening their belts in the face of increasing unemployment, falling housing prices and falling retirement nest-eggs. Belt-tightening is already present in New Zealand. The public is intolerant of elaborate send offs, junkets, and now conferences. Moreover, the retail sector had very bad intelligence which left it massively over-stocked. Newspapers now have lavish advertisements, advertising sales with steep price cuts. Business is desperate to de-stock. I note that every shop in my neighbourhood has a sale, and several business have disappeared, including, Tie Rack, some rather good art galleries and the Fine Wine Company which opened only months ago in a prestige site. A newspaper report says its receiver is trying to offload stock, favouring cash in the bank. Car yards are falling over like nine-pins. When the slump ends (and it will end as these things are affected by cycles) it might be hard for retailers to re-establish a reasonable margin in their pricing. Their never-ending discounts are training the shopper never to pay the full price again. Clearing the decks Clearing stock is a vital matter. It helps the wholesaler and retailer to survive, as it cuts the cost of holding inventory. Once stocks are cleared, orders can be placed with producers. New orders are essential for producers, and the whole supply chain, otherwise producers fail, and their suppliers are pressured, along with commodity prices. When orders fail, unemployment mushrooms. Governments are aware of this and many are stimulating shopping by giving money or vouchers to consumers. Australia has piled money onto the aged. Japan and Taiwan have given everyone vouchers. The UK and US are reputedly planning to "drop money by helicopter". But that is not the point of this column. The point is change. The return of thrift The change is most obvious in the USA because about 70% of US GDP comes from consumers. Its downturn began earlier because of the housing market crash and market-hit retirement funds. Unemployment is high and growing. The retail sector is looking very scary because consumers have closed their wallets. Consumer spending fell by its greatest percentage in 28 years. Macy's expect a 10% y-o-y fall this month. Luxury stores like Saks are the hardest hit, as Gucci and Prada sales have crashed. The car market has seized up, even for BMW, Volvo and Saab. Bargain stores like Circuit City (US) and Woolworths (UK) have also crashed. I suspect these two must have been ill-managed because in every market-place "thrift is in" and these stores should thrive. This is going to be the first deep consumer recession that many people have experienced. It is easy for someone of my generation to respond to because our parents were damaged by the depression and rationing that went right through the subsequent War and into the 1950's. We could not get credit, even if we wanted it. Our parents were amazing in their constant unpaid work in gardening, house and car maintenance, mending, sewing, preserving and thrifty cooking. Our children are different. I find it hard to instill the distinction between "income' and "capital". A deep recession will sorely test their survival skills because a battery of media messages has told them "they are worth it", they need to be fashionable, consume huge quantities of soft drink, use a card for everything, to buy new often and always, and indulge in ridiculously expensive holidays. The slump has brought new trends. Restaurants in the USA have found increased demand for comfort food, for fresh ingredients and Mediterranean tastes. Over 80% of British drivers have adopted cost-cutting changes in the driving habits. They are downsizing in cars too. British people have taken the foot off the organic food accelerator too. In the UK and US, there is no letting up on sales of chocolate, fags and alcohol. Champagne and olive sales are up as people celebrate at home rather than go out. According to Michael Baker, an Australian consultant, "˜home" or "house' brands are rapidly growing market-share. Value -retailers like Wal-Mart; and K-mart and Target in Australia will prosper. Moreover, flaunting goods ridden with logos will seem ridiculous. Andy Bond, the CEO of Asda, a huge UK food retailer also believes the slump has encouraged a "long-term shift from the frivolous to frugal". Even the well-off have adopted frugality. This will affect all generations, just as frugality affected "those who lived through rationing". Bond says consumers are buying smaller portions to limit cost and waste, turning their back of fresh foods in favour of frozen and tinned foods that are cheaper and last longer; and doing things for themselves. Hair-dye sales are up 27%. Ready-meal sales are down by 40%. Bond predicts that frugality will affect even the rich because "flaunting your money will become socially unacceptable". Presents will be fewer and more practical. He predicts the most-given Christmas gift will be the practical jumper. I predict more vegetable gardening. Yesterday, I preserved red currants and sowed more vegetable seeds. *Neville Bennett is a long-time Senior Lecturer in History at the University of Canterbury, where he has taught since 1971. His focus is economic history and markets. He is also a columnist for the NBR where a version of this item first appeared.