Postponed Purchases a Plenty
Apparently due to a combination of newfound frugality stemming
from the downturn as well as a desire to live greener, consumers are delaying
purchases on both major to minor purchases, according to an article in The
New York Times.
According to Polk, a research firm, consumers are keeping
their new cars a record 63.9 months, up 4.5 months from a year ago and up 14
percent since the end of 2008. People are upgrading cell phones on average
every 18 months, up from 16 months a few years ago, industry analysts told
the Times.
Laptops are being held onto an average of four years and four months, a month
longer than they did a year ago.
It isn’t the same across all items. According to NPD,
consumers in 2010 upgraded major kitchen appliances like refrigerators faster
than they did in 2008 or 2009. Similar trends were seen in smaller kitchen
and personal care appliances.
But the Times also found people, for example,
mending, sewing and taking extra steps to remove stains in bids to delay apparel
purchases. Consumers are also said to be looking to make staples such as razor
blades, laundry detergent and toothpaste last beyond their typical product
life cycle.
“People are squeezing the last bit out of the shampoo. They seem to
be adding more water to really squeeze out the last bit,” said Ali Dibadj,
an analyst who covers consumer products companies for Sanford C. Bernstein.
“Consumers are doing their best to conserve — we’re seeing
it again and again and again.”
The article pondered whether a long-term shift in spending
habits will occur similar the Great Depression, when Americans “held onto
antediluvian dishware and stored canned goods until rust formed on the lids.” But
other retail observers and historians argued that as spending and credit return, “so
will yearnings to favor brands, fashion and novelty over practicality.”
Discussion Questions
Discussion Questions: What do you think are the most important factors behind consumers postponing purchases? What does this mean for brand marketers and retailers?
As long as consumers are still working their way through piles of personal debt, the free-spending ways that put them in a bind in the first place will probably not return anytime soon. (The upward spiral of commodity prices isn’t helping.) At the same time, there is clear evidence that shoppers are spending more on discretionary items like apparel, at least feeling that they have “permission” to do some updating of their wardrobes. But is the consumer prepared to live a little longer with the furniture, appliances or carpeting that they already own? Absolutely, especially if they still owe money on those big-ticket items.
At the same time, retailers ought to be opportunistic about encouraging spending where there is a “reason to buy” based on new technology…the mobile phone market continues to expand and there is a big opportunity to explode the tablet and e-reader business in the next couple of years. Innovation will always be a driver of consumer spending.
Most consumers have yet to feel real relief from the Great Recession. Wall Street may be back to its high flying days, but in the rest of America, people are still concerned about their jobs, salaries, paying for health care and now rising gasoline and retail prices. Brands and retailers should continue to stress value.
Reading this article, and so many like it that have been appearing in the trades over the last several years, brings about an involuntary raising of my eyebrows.
It is really quite simple. The economic downturn directly and indirectly affects nearly every sector of the American consumer base. Americans’ net worth took a nose dive with the crash, home ownership is declining, home values fell dramatically, unemployment is at an all time high and we still are trying to define the “underlying” factors behind Americans’ consumption and purchasing decisions?
Americans have less to spend. When they have less to spend they can’t afford to buy as many products as they used to. When they can’t afford to buy as many products as often as they used to they look to make these products last.
Big ticket items can be postponed, indefinitely and frugality becomes a learned behavior borne by necessity and reality. Whether this newly learned behavior becomes embedded into the psyche (as it was with Depression era families) depends upon the duration of this economic recession. If it is short lived, like the gas and energy shortage “crisis” which fostered in the fuel saving craze of the late 1970s which petered out the minute cheap energy (like gas) filled their local gas pumps, then you can fully expect Americans to go right back to their conspicuously wasteful consumption patterns of the 1990s through the crash.
What can marketers do to take advantage of this newly learned frugality? Can you say BONUS PACKS and TWO FOR ONE?
Sure–the recession certainly is teaching us new habits. Squeezing the last drop out of the toothpaste tube is one. And yes, it does remind me of my grandmother, who re-used tin foil until it crumbled.
But there is an implication here I believe–that pent-up demand will be unleashed onto retail, at some point. Whether that point is when the unemployment rate drops, or the stock market soars, or some other set of circumstances, remains to be seen. However, crazy as it sounds, I believe that there is a hay day coming.
Technology and increased productivity have made our “toys” last longer. So we keep our cars and laptops a little longer. And with our dollars lasting a bit longer in our jeans it helps ease the pains of the financial insecurity we’ve known in recent years. So I suggest that we stress the value in our offerings.
The financial collapse taught America an important math lesson. You simply cannot continuously spend more than you have. In the early 70s, the household savings rate was around 12.5%. In 2008, that number had dropped to -1%. On average, the American consumer was spending more than he/she was earning. Eventually, this had to stop and it did. The savings rate is now around 4% and growing. Unemployment seems stuck at roughly double what it had been and spending is not a choice for those individuals.
Articles and “experts” who forecast a return to spending exceeding income are, in my opinion, delusional. The largest consumer group is still the boomers and they are realizing, in large numbers, that they are financially unprepared for retirement. The huge Gen Y population will drive more consumption as it enters the acquisitive cycle, but we’re years away from that.
Decisions to replace and upgrade are receiving more scrutiny in the current environment–from toothpaste to cars and homes. No surprise there.
At the same time, a Great Depression level impact on consumer mindset seems a bit of a stretch. There is no question that this scrutiny is continuing and will continue for some time even in the case of the most optimistic economic recovery scenarios.
It isn’t all about price, but this reality does require a razor focus on value prop and target customer segments to survive and thrive as a retailer.
The only thing “green” in my recent buying decisions is the color of the money that has become more difficult to earn.
Throughout most other times in history, it’s been quite normal to get maximum utility from the things we buy. Most other generation mended their shoes, maintained their automobiles and squeezed the last bit of toothpaste out.
The behavior only seems foreign to us because we went through a relatively short-lived period of gross excess fueled essentially by personal, corporate and governmental irresponsibility.
What we’re entering into isn’t the “new normal” it’s just normal.
I have little doubt that there will be other economic and social blips that return us to states of excess and over-consumption.
For marketers, it presents the challenge of growing the top line while fundamentally selling less. The two dominant value propositions will continue to be high value via lowest price or high value via highest quality/emotional connection. Anything in the middle is toast.
Consumer purchasing changes are for the most part are unlikely to change anytime soon. While the layoffs have slowed down, people are still losing their jobs. Consumers are getting more positive on the economy, that is, the ones with jobs.
The key trend to watch is consumer de-leveraging. Consumers continue to pay down their debt. And this trend will continue. Many consumers cannot get credit or if they can, the interest rate is over 20%. Consumers simply will not borrow at these rates unless it is an emergency. Forget credit and debit cards, I am seeing more people pay cash at the supermarket than I have seen in years. When you pay by cash, this limits spending.
Changing economic times have created a new resourcefulness in shopper behavior. There is a mindfulness to consider the value of purchases whether grocery staples or major spends. Value and relevance will be top of mind for a long time to come.
One really good example of this is the recent higher profits from DIY stores such as Home Depot. People are biting the bullet and doing more things on their own, and green if possible, as having a more fluid cash flow has become a priority.
The Great Recession has never really left. When you have as many homes being foreclosed on, still, that alone will keep consumers hands in their pockets. With rising inflation and continued high unemployment (which is much higher than the published numbers) and a lack of savings, people are only doing what anyone does when there’s a lack of funds–they slow their consuming. This will or has created a real obstruction for retailers and truthfully, I’m not sure there’s much that can be done. The normal way of marketing had better change–or maybe will change due to these economic forces.
No one seems to have used the f-word – FEAR.
Fear of losing/not getting a job, being able to afford a home, having enough to eat and enjoy leisure time, being able to buy gas and replace possessions that have passed their best before dates, fear of the future – living longer but on less money, fear of higher prices even if taxes don’t go up, fear of shortages and terrorists and OTHER political parties, maybe even natural events such as floods and hurricanes and earthquakes and … perhaps most of all, fear of not being in control of our lives.
Those who read the actual story found there wasn’t much to this “trend,” in the sense that most of what was presented was anecdotal in nature; and when hard numbers WERE presented, they were often contradictory (cars are being upgraded more slowly, but appliances more rapidly); it’s also difficult with some products (cell phones, computers) to isolate what is due to rapid changes in technology; and is it really “green” to stick with an older and inefficient whatever?
Two demographic trends are likely to become increasingly dominant though: (1) in the U.S., spending habits will reflect an aging population, and (2) whatever those U.S. habits are, they will become an ever smaller portion of the world picture.
Pent up demand exists for so many reasons it would take too long to mention. Bernice has mentioned fear. We have short memories. In 2008, we learned what gasoline prices over $4.00 do to the economy. The only folks that haven’t forgotten seem to be consumers. Today, per AAA, the average price per gallon is 79 cents higher than just one year ago and is rising. In my state, the average is $3.44 per gallon with no top price limit in sight. If government statistics are correct, the average American uses 500 gallons per year. In my household that would only equate to 12,500 miles per year at 25 miles per gallon. In my own household the basis would be about 35,000 miles on two vehicles. Or, about 1,400 gallons. Following the multiplier today of 79 cents, that equates to approximately $1,100 per year. That’s a dent. Most households now have two vehicles and average more than the old standard of 12,000 miles per year per vehicle.
Early projections for Memorial Day are $4.10. Based on what is happening in the Middle East, that’s likely low as over the weekend averages in Chicago were $3.89/gallon.
In 2008, the economy slowed at $3.00/gallon and came to a halt at $4.00/gallon. Fear of that return has existed even when prices dipped below $3.00/gallon for a significant period of time. Consumers saw how fast it hit $4.00/gallon in 2008 and have not forgotten. They learned how fast it impacts everything they buy. It’s not just the dent it makes buying gas for vehicles, it’s in the cost of everything. During the spike in 2008 there was not as significant of an increase in goods as there likely should have been and businesses suffered deeper. This time, they will and are already passing the total cost to the consumer.
There’s plenty to worry about–Health Care uncertainty, interest rate uncertainty, job uncertainty, war and political turmoil world wide, beyond excessive government spending and deficits, tax uncertainty, government shut downs, you name it. In all it makes fear a reality and a dynamic in the purchasing habits of the consumer.
What’s all this mean? From my view, consumers are buying and will continue to buy what they ‘need’ not what they ‘want’. When buying what they ‘need’ they will take care in purchasing and buy more towards value than ever before.
And, by the way, ‘green’ has nothing to do with it. Green is a ‘want’ and a ‘feel good’ not a ‘need’ when fear of just the basics exists. In these circumstances, it doesn’t even hit the ‘value’ equation.
I work with an online refrigerator review site and can say without a doubt that the reason for the increase in appliance spending in 2010 over and above 2008 and 2009 has mainly to do with the Energy Star rebates.
Not only were all of the monies that were allocated for the rebates used up, some states actually spent every last dime by 5pm the same day they started. One other thing that made it even easier to do was the recycling programs instituted at the same time. You buy your new refrigerator with a rebate and call the recycling people to come pick it up. Best of all not only did they come quickly, they also paid you anywhere from $25-$125 depending on the area.
So in a nutshell I think that explains the increase in appliance purchases for 2010. Though considering this program hasn’t been renewed for this year, my expectations are that sales should decrease from 2010 to 2011.
That’s my forecasting for now.
Reducing, recycling, repairing, and resourcefulness are the reality for today’s consumers. Focusing on value has never been more important.
I believe the Great Recession was the most economically traumatizing experience of our lives for many of us, perhaps not as traumatizing as the Great Depression was for our parents and grandparents, but pretty significant nonetheless.
People don’t shake off the effects of traumatizing experiences as soon as the event ends. The impact lingers.
It will be quite a while before previous consumption patterns return, if they ever do. Until then, many of us will be deferring purchases of all sorts, large and small, until we each feel confident again in our ability to command our economic and financial well-being.
Postponing purchases are a result of fear, fear and more fear. Consumers have lost their jobs, their homes, and much of their life savings. With no real relief on the horizon, a continued recession, poor real estate market, fewer opportunities to find jobs (fueled by less purchasing), and now inflation, consumers have no real reason to spend on new purchases. Instead they are afraid of a repeat of yesterday’s catastrophe, and the consequences that it brought with it. Until we conquer this fear, purchasing will suffer and so will the rebound of the economy.