Tuesday, October 4, 2011

The Forever Frugal Consumer

From the WSJ:

Retailers are coming to terms with a new reality: the consumer who traded down during the recession and never came back.

Buffeted by high unemployment, heavy debt loads, falling home values and high food and gas prices, these shoppers have been whipped into a permanent state of consumer caution. They buy only what they need, avoid premium labels, clip coupons and scour sales.

Wal-Mart Stores Inc. Chief Executive Mike Duke told analysts in a recent conference call that paycheck-cycle shopping is more pronounced than ever, with shoppers stocking up shortly after getting paid, then moving to smaller product sizes toward the end of the month when they run short of money.

"Consumers are fragile, fatigued and fed up," said Chris Christopher, senior economist at IHS. Global Insight, citing wage stagnation, food inflation and high gas prices.

Retailers and manufacturers are figuring out how to appeal to these new "forever frugal" consumers—rather than pin too much hope on economic rebound. Some are waiting longer to pass on higher costs, whether for food or cotton. Coca-Cola Co. and other companies have added new packages at small sizes and lower price tags. Some retailers are holding the line on hiring, even as they head into their busiest season of the year. Many stores are expanding their selection of cheaper private-label products and some are offering credit cards with across-the-board discounts. Layaway has made a comeback.

In some ways, this is a good development.  It indicates that consumers are far more likely to live within their means.  However, the causes of it -- high unemployment and the downward pressure that bears on consumer sentiment -- are still with is, which is obviously a massive negative.

I do think we are witnessing a profound change in overall consumer psychology in this area.