Reduced Consumption Good for America
Barbara Kiviat, one of Time magazine’s Curious
Capitalist correspondents, says American retailers aren’t doing the
country any favors by engaging in aggressive discounting. In fact, the author
posits, it would be an act of almost patriotic proportions if merchants raised
the cost of goods sold to the consuming public.
The rationale goes something
like this:
- Americans’ inability to spend within their means has created
mountains of debt, resulting in financial disaster for many in
recent years. - Cheaper prices cause Americans to purchase a bunch of things
they don’t need. Making things worse, they often make these purchases on
credit even though repayment may be an iffy proposition. Ms. Kiviat points
out that consumer spending rose 0.7 percent in October
compared to September even though personal income was up only 0.2 percent.
Ms. Kiviat dismisses the view of life that she/he with the most toys wins.
In fact, she points to statistics from the Self Storage Association to point
out that we don’t have room for all the stuff we currently own (BTW – see
classic George Carlin routine on stuff with link below). The U.S. went from
300 million to 2.4 billion square feet of self-storage space between 1984 and
2008.
Groups
have sprung up around the country to spread the word that more possessions
do not lead to greater happiness.
“We have this cycle we’ve developed — work
intensively, buy more, repeat,” says
Carolyn Danckaert, director of home and communities programs for New American
Dream, a responsible consumption group. “At a certain point, the accumulation
of stuff starts to drive your life.”
Discussion Questions: Do you see
the country going into an extended period of reduced consumption? Do you agree
with the Time magazine
author that there would be advantages for the country in such a scenario? How
would retailers be affected in such an environment?
I find it difficult to believe that we will slip into an extended period of reduced consumption. The human animal does not do a good job of learning from history and as soon as the employment picture gets better and businesses start to invest, consumers will unleash their pent up demand. The only way to stem this tide is to make credit harder to get and as long as our banks rely on card charges for big profits and retailers ask every consumer if they want their store card and offer incentives for opening one, our collective will power will crumble under the pressure.
There are a few threads running through this article and they are a bit contradictory.
Do I think we’d be better off with less, higher quality stuff? Sure. In fact I wish we could make some right in this country.
But do I think we should slow down consumer spending even more? Nope. Unfortunately, consumer spending is a big part of our GDP, so we actually can’t afford to stop.
Again, at the risk of sounding protectionist, I really wish we could MAKE more of what we consume. But until we do, as long as consuming is our core competency, we’d better have at it.
Isn’t the end of this line of thinking that we all ought to go back to being hunter-gathers living in caves? That would be a pure, “authentic” human life, even if a bit nasty, brutal, and short (to quote Hobbes). That’s absurd.
Two other thoughts:
1) Sure, accumulating stuff can’t cause unhappy people to be happy. You need to have a career, relationships, hobbies that you enjoy. But if you have those things, stuff can make life better (I LIKE my convertible!)
2) I hate the idea that retailers “make people buy things” because they are cheap. People don’t have to go shopping. IF they don’t have the money, they shouldn’t. But why should people with financial self-control have to pay more money so that people without financial self-control don’t over-indulge? Aren’t the people with financial self-control paying enough right now?
No consumer’s debt, no matter how justified, is as good as his money. Barbara Kiviat makes some good points; points that America’s consumers don’t wish to live with, at least not yet. And so the spending beat goes loudly on.
American per capita productivity is the highest in the world. We work hard and we buy “stuff” to show for it. I like the idea of buying less, higher quality stuff, but that’s just me. As long as there is abundant cheap stuff to buy, there will be plenty of Americans to buy it. As far as hoping for an extended period of reduced consumption; unless we have a collective personality transplant that reduction would be the result of an extended recession/depression and we definitely don’t need or want that.
My view is that America is in for reduced consumption for several years to come. However, I don’t think it has anything to do with how much “stuff” people own. I think it has a lot more to do with the demographic curves.
The largest driver of current consumption is the baby boomers, who have driven retailing for decades. The boomers have just watched in horror as the value of their main assets (home value and 401K) have dropped by 30-40%. They are approaching retirement and are leaving the acquisitive cycle. Their spending has dropped accordingly. Gen X behind them is 11% smaller and are not big spenders to begin with.
The next round of consumption will come from Gen Y, which, at a population of 100 million, is a third larger than the boomers. Their current average age is 18. They are already spending at a rate 5 times what the boomers spent at that age.
When Gen Y enters the acquisitive years (age 25-45) in force, we’ll see consumption rise again. That’s 5-7 years away. Until then my guess is that American retailing will be pretty dreary.
The tough pill to swallow here is that we have come to the end of a very unique era in modern consumerism. A freakish twenty-year period where we all but eliminated the middle class, racked up historic debt and significantly over-stored North America.
The gold-rush is over. There is no return to normal, only a shift to something different. Perhaps that’s what really scares us.
An enormous recalibration has to take place now. Retailers will close stores and/or change formats. Some will go out of business. Consumer buying patterns and demographics will shift and growth will be more modest. People will indeed buy less because they’ll have to.
As an industry, I think we need to accept this and move on. In the process, I hope we can focus our energy on building better quality businesses that truly deserve to be shopped. In the long run the cure isn’t more credit–it’s better retail.
A lot of this has to do with the American (and global) habit of buying poor quality products that last only a short while. While it’s clear that we can’t go on indefinitely overconsuming everything, it’s also going to be tough for retailers to survive in an era of flat to declining sales.
I think part of the answer lies in boosting the QUALITY of products sold, so that we don’t have to keep replacing the low quality socks, light bulbs, computers, cars, etc. as frequently as we do now. If we can produce higher quality, longer-lasting, “greener” products, we can sell them for more, they will last longer, and we’ll all be better off. And, maybe for electronics we can find a way to make the shells more durable and the components replaceable and/or upgradable.
Interesting article and Ms. Kiviat makes some justifiable points. Unfortunately, retail is all about moving merchandise and we can’t escape the laws of supply and demand. If something won’t sell at a certain price, it gets reduced or sent back and reduced somewhere else. Now I’m all for responsible discounting (read my recent Black Friday Madness article on RetailWire) but I’m not sure increasing prices would actually reduce consumption (not that it would ever happen). But kudos to Ms. Kiviat for saying what most of us are thinking.
American’s current obsession with spending seems odd to some of us who grew up with parents who lost everything in the Depression. The insistence on having the latest everything just doesn’t match the economic realities of longer life and nearly bankrupt social safety nets. We’ve got to balance retail’s desire for more consumer spending against consumers’ imperative to start to save something–anything!–for the future.
While Ms. Kiviat’s idea that retailers somehow could be more patriotic if they raise their prices is ridiculous, she does make some excellent points relative to consumption.
For the last 20 years or more, the people of the U.S. have been on a buying binge, all made possible by extending their debt burden. It is over. There is no more debt to absorb, and that is the good news. People hopefully will find that their lives are just as happy and just as complete with fewer things. Or, they may start to understand that more things actually made them unhappy.
As we look across the Atlantic, we see some interesting comparisons. Though the statistics may be a bit subjective, they do suggest that it may be time for a change in the U.S. Recently, one of the discussions in RetailWire quoted per capita retail square footage. The U.S. was a whopping 20.2, Sweden was 3.3, UK-2.5, France-2.3, and Italy-1.1. According to the Happy Planet Index (Yes, there really is one.) people in the U.S. rank among the lowest in the world. In a Happiness Net survey, the people of France, Sweden and the UK were no less happy than people in the U.S.
How are retailers going to be affected? Simply, they are not going to be able to support the massive square footage that currently exists. That trend in combination with the no-square-footage-necessary growth in internet retail may cut U.S. square footage in half.
We need to face it. We as as nation–and therefore retailers–are in for a long, tough slog These are some reasons why:
CREDIT – Credit limits to even top grade borrowers have been reduced and consumers who once justified occasionally carrying a balance at 7% no longer can justify or afford the practice of relying on revolving debt at 29%.
HOUSES AS ATMS – The full story of how much of America’s consumerism over the past decade was carried on home refinancing cash-outs has yet to be fully told–but those days are gone. Kaput. The number of underwater mortgages today are well past the easy credit/no down payment fiascoes, and now include millions of older homes that were once completely paid for, or well on the way to being mortgage free, but were tapped for easy cash time and time again by owners who thought home prices only go up.
JOBS – With unemployment so high and rising, money in many families is scary tight. Retailers have always required consumers and consumers have always required spending power. Younger people particularly–that coveted Gen Y purchasing group–are unable to find work and have little to spend. When folks say “things will all be fine again when the jobs come back,” I want to ask them, “and where will those jobs come from?” As others have mentioned, our once robust manufacturing base is in other countries. Customer service jobs are in other countries. The bubble-driven banking, real estate, landscaping and construction industries have all been decimated. Does anyone really believe those jobs are coming back in full force anytime soon? The retail segment has shed jobs as it has shed its overstored landscape. Even once secure government jobs and payrolls are being reduced, although they will probably return (as government jobs always seem to.) Again, where are all the unemployed and willing workers going to find work? This is where everybody’s long-term focus needs to be.
I don’t think it is the role of retailers to “keep” consumers from spending money they shouldn’t. That is absurd. But I DO think many of the (thus far) surviving retailers have not accepted or adjusted for a permanent change in their businesses. One place I’d like to see some of them go is to make a return to their own owned and operated US manufacturing of certain products they sell. A two-fer. Differentiated products and making more jobs.
Paula Rosenblum is right when she says that being tight with our money will probably do more harm than good, but I think that only holds true in the short term. Beyond that, we absolutely need to increase our rate of savings.
Am I confident this will happen? No. In an era where shopping is promoted as entertainment, and now that a new wave of mobile applications has hit the scene that literally bombards consumers with information about products and deals, I think it will be “business as usual” once we finally climb out of this hole.
Research is telling us that consumers are going to save substantially more than they have in the past. That’s good for America. But it’s not good for commerce. The trends merely point out that we will have to work harder for their dollars. No surprise there–just more challenges.
As Charles Darwin wrote: “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” Perhaps it underscores why RetailWire exists.