The economy is not the only thing that is fragile right now, so is the consumer. Economists say that consumers are worried about unemployment, decreasing home values, and increasing food and gas prices. Consumers have almost adopted a cautious attitude towards spending and are only buying basic needs, avoiding higher priced labels, clipping coupons and tracking sales.
Consumers are also consolidating shopping trips to reduce gas costs and spending a lot less on discretionary items. Retailers are noticing an increase in “paycheck-cycle shopping” where consumers are stocking up on goods around payday and only buying smaller purchases as they get short on money towards the end of the month.
In the early spring, the stock market was rising, consumer spending was rising, and retailers were cautiously optimistic about placing orders for the holiday 2011 season. However, slow back-to-school sales are an indicator that holiday spending is not going to meet retailer expectations. Retailers are now realizing that consumer frugality is not a trend, it is a reality. Many retailers are trying to prolong passing on cost increases from raw materials to consumers. Some brands, like Coca-Cola, have added new packages in smaller sizes to offer consumers a lower price point option. Many retailers, like Target, are offering proprietary credit cards with cash back incentives. Target is also reformatting the majority of its stores so that they are more of a one-stop destination for consumers. Walmart, responding to consumer demands, reintroduced its layaway program on popular holiday categories like toys, electronics, and jewelry.
Of course, retailers will also continue to rely on discounts and promotions to move inventory, especially during the holiday season.
1. Why are consumers becoming more frugal?
2. What are retailers doing about it?
Ann Zimmerman, “Frontier of Frugality,” The Wall Street Journal, October 4, 2011.