The Frugal Consumer
Posted by Don Capman
WILL CONSUMERS EVER COME BACK?
Remember the long-running television series “The Frugal Gourmet?” Now we have the ongoing and painfully long-running reality of “The Frugal Consumer.”
Everyone on both sides of the retail equation realizes consumer spending habits have changed during and after the Great Recession. The question now is: will consumer spending return to pre-recession levels and, if so, how long will it take?
Most economists believe the recessionary shock was so traumatic to the consumer that freewheeling pre-recession spending will not return anytime soon.
Although some consumers have lost their livelihoods and their homes, the majority of Americans are still gainfully employed and are not in danger of losing their homes.
So why aren’t consumers spending money in retail stores like they were before the recession? With the exception of many discount-and dollar-type stores that flourished during the hard times, most retailers experienced a dramatic and negative change in sales and profits. If 90+% of the workforce is still employed and relatively secure, then why aren’t consumers spending their money?
Real estate has been a very good investment for a very long time with steady and sometimes dramatic appreciation. Many people counted on the value of their real estate to fund their retirement. Everyone knows what happened to the overvalued real estate market. No longer could real estate be counted on to fund retirement. The collapse of the real estate market shook the economic foundations of most middle-class Americans.
Something they could always count on for future security rapidly fell apart. Trauma almost always produces extreme caution.
Investment funds and the stock market used to be something where only the richest of American Society could play. Today most Americans participate in some type of retirement account directly tied to the stock market. Everyone knows what happened to the stock market.
Taking into consideration the impact of real estate and the stock market, most Americans who are gainfully employed and still own houses have less net worth than they did three years ago. Net worth is calculated by adding all of one’s assets and subtracting all liabilities. Net worth is what most people look at when considering retirement. Shell-shocked by the unanticipated losses and the effect that those losses will have on their future, the average consumer needs a very compelling reason to part with their dollars.
Retailers can't do anything about the housing or stock markets. They can, however, realize that today’s consumer looks for and expects value. That value must include the most desirable merchandise at a most desirable price with the most remarkable service.
Although most economists agree that the consumer will remain frugal in the foreseeable future, they will still spend money. The question now is where will they spend it?
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