The credit crunch hasn't quite hit the street fully if the retail sales trends over the last year are anything to go by. We were already seeing the warning signs of a sharp downturn in consumer spending, well before the credit crash.
Christmas looks to be even tighter and 59% of consumers expect to reduce their spending this holiday season. Higher food prices (73%) and higher energy prices (69%) were the top two reasons for spending less, prices out-pacing the economy or inflation (61%)
and job uncertainty (18%).
A record number of consumers say they are pessimistic about the economy. Over half of the respondents (53%) say they expect the economy to weaken next year, the highest in more than 10 years of asking this question, compared with 43% last year.
Categories in which spending is likely to be down the most from last year are
- Home improvements
- Home/holiday furnishings
- Non-gift clothing
- Socializing away from home
- Charitable donations
- Entertaining at home
According to the report, 73% of consumers said the best value for their money and 72% said low prices will cause them to shop a particular retailer this season. More consumers say they will shop at venues such as discount/value department stores, warehouse
clubs, dollar stores, outlet stores, and off-prices stores. Drug stores and supermarkets also showed big increases from last year. In addition, flea markets (7%) and re-sale/used merchandise stores (6%) were cited as destinations by consumers.
Over the past 24 months, consumer prices have risen 7.8% according to the U.S. Bureau of Labor Statistics.
Consumers are changing their buying habits at the supermarket and choosing the cheaper 'home' or store brands.
Mintel International interviewed 3,000 consumers in September and almost 25% agreed that the couldn't tell the difference between national brands and store brands of paper products. Store brands on average cost 46% less than name-brand versions, Mintel found.
Everything from paper napkins(-12%) to nappies have suffered large falls in the past 12 months. Consumers are reigning in their spending like never before. Sales of 'home' brand detergents in general are up 23% and skin-care items are up 16% in the 52-weeks
ended Sept. 6.
Sales of budget priced detergents have grown by as much as 60% in the past year.
41% of upper-income consumers (over $100,00) reduced spending on non-essential groceries, and a quarter of these consumers said they gave up favorite brands over six months in 2008.
Companies such as Procter & Gamble are being forced to alter marketing strategies, and the other national brand marketers must be seeing similar falls in sales of their products.
Stand by for a swarm of in-store promotions as brands try to influence consumers where the decisions are made.
Looking at these numbers which cover the period prior to the crash, it seems like we were already staring at a prolonged recession before the credit squeeze and actual market crash. Unemployment figures add more gloom to the picture. The fundamentals suggest
we are in for a long downturn, somewhat deeper and more prolonged than any of our politicians and pundits are willing to admit.
As to what this means for banking, I'd suggest those credit cards will get much less use and low fees, no frills, safe banking is going to win the day for some time to come.