By  on December 10, 2008

Sixty percent of U.S. adults plan to spend less next year than they did in 2008 — and apparel purchases are targeted for major reductions, Boston Consulting Group has found.

The vaporization of personal wealth and the deepening recession in the U.S. have resulted a new urgency to save money — a change that is unusual for its speed and scope. About half of the country’s adults plan spending cutbacks this holiday, an indicator of still-tighter budgets for the year ahead.

“We never expected to find a decrease of this size,” said Michael Silverstein, a BCG senior partner. “It is a totally different mood and attitude. I’ve never seen as rapid a shift” in people’s view of their personal finances as the one that’s occurred between spring and fall 2008. “Consumers are cutting spending with a vengeance, saving their last few dollars, and are fearful.”

Apparel is an area in which shoppers anticipate making their sharpest cuts in 2009, along with restaurants, vacation travel, electronics and home furnishings. One in five consumers said they would be spending less on clothes, and half anticipated making fewer visits to restaurants ­— the sector facing the biggest potential loss of customers.

The findings were based on a late-October representative survey of about 1,700 adults with annual household income of $50,000 or more, conducted by Harris Interactive for BCG and analyzed by the consultant.

An “extraordinarily tough” consumer climate will prevail at least through spring 2009, a period in which shoppers will likely be making fewer visits to stores than a year ago, said Britt Beemer, chairman at America’s Research Group. “We will probably see more retailers go bankrupt in the first six months of 2009 than in the last five years combined,” he said.

A similar scenario is anticipated by Stacy Janiak, a vice chairman and U.S. retail leader at Deloitte, who expects “another pick-up” in retail bankruptcies this winter, following the “pick-up in the pace of Chapter 11 filings going into the holiday season.”

This holiday, a group of 300 people in their 20s and 30s who are considered tastemakers by trend forecaster Zandl Group, said they were being more discriminating about fashion purchases for themselves. Apparel for the workplace and boots top their shopping lists.

“That has a lot to do with the job market, if they’re looking for jobs, and secondarily, wanting to seem as buttoned-up as possible in their current work environment,” said Irma Zandl, president of Zandl Group. Unemployment rose to 6.7 percent in November from 6.5 percent the previous month, and 533,000 jobs were lost, the biggest monthly increase in 34 years. Some economists project the jobless rate could rise as high as 8 percent next year — twice the estimated 4 percent considered more typical in the U.S.

The tastemakers are getting choosier about holiday gifts, too. “There’s more of a sense of wanting to buy things that are really wanted,” Zandl noted. “People don’t want to waste money on junk.”

Three-quarters of the cohort had holiday gift budgets of either $100 to $300 or $300 to $600, when polled by Zandl in mid-November.

“It’s going to take a while for people to get out of debt; I don’t see a turnaround until 2010,” Beemer said of consumer finances. “This year, 70 percent of people’s tax refunds went to paying off debt.” A still-bigger piece of tax refunds is likely to be used this way next year, he added.

Fear and worry have possessed shoppers, Silverstein said, with a plunge of 40 percent in the value of “paper equity” owned by the 40 percent of U.S. households with the highest annual income. People in these 46.3 million homes have an annual income of $62,500 or more.

Silverstein said it will take four key elements to restore people’s confidence and get them to start spending more on discretionary items such as apparel:

• President-elect Barack Obama taking office Jan. 20, signaling the possibility of new solutions to the economic crisis, such as his proposed economic stimulus program.

• A fiscal stimulus policy that will produce some inflation and defuse the deflationary threat to business profits.

• A job-creation program.

• A stabilization of housing prices, propped up by government assumption of foreclosures and lower interest rates on mortgages of homes in danger of foreclosure.

Rates on 30-year fixed mortgages have eased to about 5.96 percent from 6.1 percent, according to HSH Associates, since the Federal Reserve revealed plans for an $800 billion stimulus package to aid both consumers and money lenders. The announcement came just ahead of the traditional Black Friday kickoff to the holiday shopping season, when spending rose about 5 percent, but came at a cost to profits in many deeply discounted transactions. Holiday spending has since lagged.

With fixed costs eating up about half of Americans’ monthly budgets — a big bite, given their fears about job security and broader economic woes — discretionary spending is likely to keep falling well into 2009, Silverstein said. Discretionary outlays now command about one-third of the income in most U.S. households. Discretionary purchasing in homes with an annual income of $94,000, for example, is averaging about $30,000. By comparison, householders with an annual income of about $48,000, the U.S. median, are buying a considerably smaller $14,000 worth of discretionary goods a year.

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