ECONOMY - Consumer Spending Behaviors

MSNBC ran a story last week on Consumer Shopping Behaviors and Attitudes During an Economic Crisis, highlighting the complexity of consumers' responses to the downturn and noting that:

Understanding consumers' reactions in this fast-moving economic environment will be a key factor in separating those companies that eventually emerge from the current crisis and those that do not.

We have likewise been tracking young adult consumers' responses to the economy since December 2007 via our Online Panel of Thought Leaders (made up of young adults ages 21-35 across the country). We will continue to monitor our online panel, especially to gauge the earliest signs of a turnaround.

Selected Zandl Group releases on the economy from 2008-09:

Recession Culture 2/09.

Slow Return of Optimism, 12/08.

Holiday Shopping in a Colder Retail Climate. 11/08

FEELING THE SQUEEZE
June 3, 2008

We recently polled our online panel of young adult thought leaders* to check in on the impact of the current economy on their spending and lifestyle (six months after our initial survey).

Across the board, consumers are being squeezed by gas prices and are being forced to reprioritize their spending from a “want” culture to a “need” economy.

“I’m definitely having to spend all my money on gas, food and other essentials. I’m talking store brands. It’s pretty ridiculous.”

Over one-third specifically cited high gas prices as having the biggest impact on their spending and lifestyle. More are switching to public transportation, carpools, walking and biking (“I ride my Cannondale bike to work instead of driving my Honda Accord”).

They’re cutting back drastically on clothes shopping and restaurant meals. They are also moving their entertainment and nightlife home to reduce gas consumption and save on high-priced cocktails.

They’re doing more cooking from scratch and cutting back on more expensive prepared food purchases. One in ten also now brown bag their lunches.

“I cross-shop more often now, looking for the best deal.”

They are cutting back on all shopping and are becoming acclimated to waiting for sales and discounts. They’re using more coupons and buying more store brands. They’re also doing more bulk shopping and finding more deals online (the ultimate gas saver) including Amazon, Craigslist and eBay.

The mall and high-end department stores are losing out to cheap chic retailers like Forever 21, H&M, and Target. More are also curbing impulse purchases by reducing time spent window shopping and browsing. Some had not been to a mall in months.

Other changes they’re making to save money include cutting back on organic products, Starbucks, premium cable services and canceling Netflix. At the same time, they are thrifting and buying used/second hand electronics and furniture on eBay and Craigslist.

One in ten are also changing their travel plans with most flying less and staying closer to home. Some are also switching out destinations that favor the weak dollar e.g. South America or Asia vs.Europe.

Winners: Wal-Mart, Target, Costco, Trader Joe’s, Forever 21, Craigslist, Amazon, Dollar Stores

Watchout: Whole Foods, Starbucks, Sephora, American Apparel

“I used to go out all the time. Now I just buy my wine and come home and drink. My friends and I are doing more ‘house’ parties and hangouts.”

Almost half are entertaining more at home with one in five going out less because of the expense. At-home socializing includes cooking, playing board games, and renting movies. They’re also stocking home bars with more wine, high-end spirits and beer (“you can get a six-pack for the price of one beer at a bar”),

When they do go out, they’re looking for happy hour deals, open bars and more laid-back local bars with cheaper drinks.

Other changes they’re making to save money include ordering well drinks instead of top-shelf brands and cutting back on expensive cocktails and mixed drinks. Some are not drinking at all when they go out because of the cost. They’re also curtailing their nights out at expensive clubs, bars with cover charges, the movies, and big ticket concerts.

EMERGING ECONOMIC TRENDS
DIY Culture
Consumers are increasingly adopting a DIY mentality to save money:
- cooking vs. eating out
- bringing their own lunch to work
- making coffee at home vs. Starbucks
- doing their own home repairs and renovations vs. hiring a professional
- creating their own entertainment at home
- opting for new underground entertainment venues in up-and-coming neighborhoods
that are cheaper and more fun than established venues

Online Barter: The Parallel Economy
They are going online to circumvent the established retail economy:
- craigslist to sell/buy/barter everything from furniture to electronics to haircuts
- ebay to sell/buy clothes, electronics
- paperbackswap.com to exchange books (shipping costs only)
- couchsurfing.com for free accommodations

Keeping it Local
With high gas prices, consumers are spending more time at home or closer to home. Some are also calculating distance (gas usage) vs. savings and if the discount stores are further away, they’ll shop at the least expensive local store.

They are gravitating to local bars and restaurants which are often more low-key and laid back with less expensive drinks and food. Patronizing a local establishment also saves money on gas and often yields freebies for regular customers. Weekends away are being replaced with “Staycations” at local parks, lakes and beaches.



FEELING THE PINCH
January 25, 2008

We recently surveyed 300 young adults from our online panel of thought leaders about the economy, its impact on their spending and lifestyle and their predictions on who will be the next president of the United States.

Just over half have been personally impacted by the economic downturn but even those not suffering are still reducing their spending and buying more cautiously than they have in the past.

The big losers have been the non-essential categories e.g. clothing, restaurants and bars, cabs, new car dealerships, entertainment. The winners would appear to be grocery stores, fast food restaurants with dollar meals, public transportation and perhaps liquor stores for more at home entertaining.

“I’m feeling cautious, leery, overexposed, mildly depressed”

Over half of our panel said they have been personally affected by the downturn in the economy. Many have lost faith in the future and feel the country is in a downward spiral. The impact is also being experienced by their families and friends.

“I see the effect of the economy on my father’s dry cleaning business. The cost of his most important supplies like petroleum, the electricity needed for processing and even something simple like hangers has risen dramatically. Meanwhile, customers are not spending as feely as they once were.”

What’s bringing it home for most is the real estate market (too many houses for sale/problem paying their mortgages), the stock market decline (portfolios and 401K plans losing value), and gas prices (along with the price of everything else going up while their wages are stagnant). Many also mentioned limited job opportunities and those still in college were concerned about finding positions once they graduate.

“Fewer splurge purchases. Basically, I’m only buying essentials, not shopping for fun.”

Almost two-thirds have made changes in their spending habits and are more careful about what they buy. Clothes have taken a big hit (“only buy on sale”) as has eating out and most other frivolous purchases. Most are also watching how much they drive and looking to car pool and take public transportation when available.

Conversely, more are cooking and entertaining at home e.g. renting a movie vs. going to the movies with friends. Many also noted that they were saving lots of money by brown-bagging their lunches.

Those less affected by the economic situation are still changing their spending habits, with many citing cut-backs on credit card purchases and paying off their balances each month. They were also more likely to buy generic brands as opposed to name brands and are cutting back on restaurant meals in favor of gourmet grocery shopping.

They expect the downturn to last at least 1-2 years

About one third expect the economy to recover in 1-2 years with another third expecting it to turn around in the next few months or by the elections latest.

Almost 1 in 5 believe this is just the tip of the iceberg and don’t expect a recovery for 5 to 10 years.

They’re evenly split on whether one political party would be better at handling the economy than the other

The majority felt change was most important, but didn’t have faith that merely changing parties would be sufficient to improve the economy. However, they did feel that a democratic win would signal a shift on Iraq and free up more money for domestic issues.

Who do they think will be the next President
Three quarters believe it will be a democrat with just under half assuming it will be Hillary Clinton and one-third expecting an Obama win.

Only 10% considered a Republican win likely – of those, McCain and Romney were in the lead.

Note: we did not recruit based on political affiliation but we believe there is a Democratic skew to the panel.

More Zandl Group press here.
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