High gasoline and food prices and slow income growth are making consumers more cost-conscious, inclining them to shop more locally and in a growing number of places.
This story first appeared in the June 28, 2007 issue of WWD. Subscribe Today.
It’s also widening the gap between the haves and the have-nots, portending a promising near-term future for stores aimed at upmarket customers, while dollar stores and discounters, with Target a notable exception, are likely to keep struggling, projected Mandy Putnam, a vice president specializing in shopper insights at consultant Retail Forward.
Rising food prices are affecting more than half of women, or 58 percent, while 20 percent of women said they are feeling the pinch of higher mortgage rates and property taxes, according to two surveys taken by America’s Research Group, a consumer researcher, in May, each polling 1,000 people. The rapid rise in mortgage interest rates in mid-June to an average of 6.86 percent for a 30-year fixed mortgage, for example, raised mortgage payments by an average of about $100 a month on the typical U.S. home, a phenomenon that’s a drag on people’s spending power. The median price for a home in the U.S. was $212,000 in the first quarter. (Last week, 30-year fixed rates eased to 6.69 percent.)
“There is more polarization — more households gaining more money and others becoming more price-sensitive,” Carl Steidtmann, chief economist at Deloitte Research, said of a trend that has been building for two years. The dramatic run-up in the trade deficit, he added, reflects the diminished base of manufacturing jobs and resulting decline of income “flowing into middle-class homes that would have benefitted from those jobs and income.” There were 14.05 million manufacturing jobs in the U.S. in May, down from 14.22 million a year earlier, according to the Bureau of Labor Statistics.
These conditions are making bigger bargain hunters of the nation’s shoppers, leading them to visit more stores than they had been earlier this year, to get pickier about what they’re willing to buy and, in many cases, to abandon regional malls and shop in town centers instead.
“Americans are facing a series of costs — housing, health care — they feel they have no control over,” observed Paco Underhill, managing director at consultant Envirosell.
A healthy appetite for good deals surfaced during President’s Day weekend in February and became more robust in May following Memorial Day weekend, said Britt Beemer, chairman of America’s Research Group. “Consumers today are obsessed with getting bargains, so the prior trend of going to fewer stores has been reversed and shoppers were going to 20 percent more stores this Memorial Day weekend, compared with last year.”
According to the group’s findings, eight in 10 Americans shopping on Memorial Day weekend said they were looking only for bargains, marking an all-time high. “Apparel is right in the bull’s-eye of [products for] consumers who want to buy at 60 to 70 percent off,” Beemer stated.
On the hunt for good buys, Americans were visiting an average of 12 or 13 stores a month in May, the first time in three years that the number of places people visited to shop increased, said Putnam, who added it’s too soon to know whether the pickup is an anomaly or the start of a new dynamic. Despite people’s propensity to visit more stores, she’s seeing “a growing tendency to postpone shopping trips for some nonessentials like clothing; it correlates with gas prices.” (The average gallon of gas in the U.S. cost about $2.98 on Monday.)
With various costs of living heading north, weak wage gains, and many consumers “living paycheck to paycheck,” trend forecaster Gerald Celente anticipates more local shopping and fewer shopping trips in the months ahead. “It’s not like ‘See the U.S.A. in your Chevrolet,’ anymore,” Celente, director of the Trends Research Institute, said. “People are tired of suburban sprawl.”
Within six months or so after a town center opens, a sizable portion of shoppers starts shifting away from regional malls in the area and going to the often closer-by town center instead, a trend America’s Research Group has observed unfolding over the past three years. In March, one in three people across the country contacted by the group said they are no longer shopping at regional malls. Nearly half of women 35 and older, 45 percent, said they were shopping town centers, as did 55 percent of their male counterparts. Beemer expects Gen-Xers (aged 30 to 40) and Millennials (those in their 20s and younger) to keep heading for town centers as well, lured initially by the restaurants, entertainment and sense of community. Last year, people under 35 at eight town centers nationwide told America’s Research Group those places were “their regular place to shop.”
Lower-income shoppers in particular are trying to find good prices in the least possible amount of time. “We’ve seen a lot more interest in the fastest and most convenient,” Putnam said. Shoppers have been complaining about long lines in discount supercenters, reporting waits of 35 to 45 minutes in Wal-Mart Supercenters, Super Target stores, and Meijer super stores, among others, she related, adding, “Some people are shopping at two in the morning to avoid the lines.”
In contrast, upmarket consumers with annual household incomes of $85,000 or more are looking for things enabling an expression of their individuality or lifestyle, with price and proximity lesser concerns. “In recent months, there has been less routine and less thrill-of-the-hunt shopping among the affluent,” Putnam reported.
Instead, upmarket shoppers have been “cherry-picking to reflect who they are,” said Ron Rentel, president of brand consultant Consumer Eyes. “Increasingly, people have to go to more far-flung places for things less likely to be seen everywhere or for artisanal items,” observed Rentel, author of the just-published “Karma Queens, Geek Gods and Innerpreneurs: Meet The 9 Consumer Types Shaping Today’s Marketplace.”
That quest has been playing out in resale environments, such as vintage shops where people can find those odd items. A mode of shopping once associated mostly with used cars is no longer seen as an embarrassment and is increasingly seen as smart, whether furniture for first-time householders or an unusual piece of clothing, said Candace Corlett, principal partner at WSL Strategic Retail. For example, vintage or thrift stores were shopped by one in three teens looking for school clothes last summer, a trend Corlett anticipates will resume this season.
In a growing number of cases, the search for things that express one’s individuality is ensuing online. “You don’t have to go to that one cool store to get what you want — you can cherry-pick it from your desktop,” Rentel noted. “This is changing what’s cool. It’s harder and harder for people to stay ahead of the curve.”