Will we stick to our newfound frugality?
Adrienne Radtke plans to keep riding her bike to work even if gas prices drop. Steve Pizzini got rid of his Cadillac Escalade in favor of...
The Associated Press
NEW YORK — Adrienne Radtke plans to keep riding her bike to work even if gas prices drop. Steve Pizzini got rid of his Cadillac Escalade in favor of a 16-year-old Acura and doesn't expect to have another gas-guzzler.
"I had a paradigm shift," said Pizzini, a financial analyst. "I spent the money on a nice car. But to me, it's not worth it. I don't think I will go that route again."
Every economic downturn changes shoppers in some way. But this time experts say the new behavior — fueled by higher gas and food prices, tightening credit and a slumping housing market — are the most dramatic they have seen in decades.
So retailers, marketers and investors are all trying to figure out which habits shoppers will keep and which will they drop when the economy recovers. Will the people who switched to store-brand ice cream go back to Breyers or Edy's? Will shoppers return to department stores or keep looking for labels at T.J. Maxx?
"We are looking at stuff that reminds me of the 1970s," said Patricia Edwards of investment manager Wentworth Hauser and Violich. "Americans have seen a huge amount of their balance sheet evaporate. The effects will be more lingering."
Wendy Liebmann, president of WSL Strategic Retail, says people's new spending patterns are forcing companies to change products and tweak their marketing to appeal to cost-conscious shoppers. She points to the last big recession of the early 1990s that helped trigger a fundamental shift in retailing as affluent shoppers started buying at discounters as well as upscale stores.
Radtke, 31, who holds down two jobs — at a veterinarian's office and at a flower shop — recently picked up shoe glue to fix the soles of her worn sneakers. She's buying store-label soups and crackers and bought a bike for her commute after not having ridden one for five years.
"We weren't big spenders, but now we are watching our money more," said Radtke, of Manitowoc, Wis., whose husband works in construction. "Even if I fell into a pile of money, I still wouldn't be spending a lot."
According to a survey released Thursday by market-research company Nielsen, about two-thirds of consumers are cutting spending due to rising gas prices, up 18 percentage points from a year ago.
According to the study, which queried nearly 50,000 consumers by e-mail during the first week of June, 78 percent of them are combining shopping trips and 52 percent are dining out less often.
A rebounding economy may let some consumers revert to their old ways — like people who switched to smaller cars when times were hard in the 1970s but flocked to sport-utility vehicles when gas got cheap again.
But with more economists believing that the current woes will last well into next year, many think the underlying frugality will linger. Some Americans say their parents or grandparents affected by the Great Depression are still hoarding buttons and squeezing out several soup meals from ham bones.
"I shop cautiously," said Edna Sott, 88, from Berkeley Heights, N.J. "I would say that is a hangover" from the Depression.
Marian Salzman, chief marketing officer for public-relations agency Porter Novelli, cites a "Depression mentality" that's making people "rethink their optimism in the economy."
The gap between discounters and mall-based apparel sellers was evident in monthly retail-sales figures released last week. The International Council of Shopping Centers-UBS tally of 38 stores found that same-store sales at discounters rose 5.1 percent in June and 9 percent at wholesale clubs. Discount giant Wal-Mart posted a robust 5.8 percent, its best June performance since 2002.
At department stores, though, same-store sales — or those at stores opened at least a year — dropped 4.1 percent.
"People are spending money on food and the products they need to sustain life," said Todd Hale, senior vice president at Nielsen.
He noted sharp declines in visits to clothing, office-supply and hardware stores. He also pointed out that sales of store-brand products in grocery items are up 9.1 percent for the year ended April 19, while sales of branded products rose a more modest 3.9 percent.
More than half the sales growth in store-label grocery items is from dairy products like milk and cheese.
Liebmann says Americans are trying to take "control of the little things" like mending socks or buying more store-brand food because they can't control gas and food prices. Their little changes, though, are forcing some companies to respond in big ways.
Auto executives predict that consumers' newfound appreciation for smaller cars will be permanent, causing major pain at auto plants. Toyota was among the latest to announce a product overhaul, saying it will shut down truck and SUV production to meet changing consumer needs.
Pizzini, 29, of Eagleville, Pa., says his Acura gets almost three times as many miles per gallon as the Escalade. Since last October, LeaseTrader.com has seen a 24 percent increase in the number of people who want to downsize to a smaller car, spokesman John Sternal said.
Stung by gas prices
Fred Clements, executive director of the National Bicycle Dealers' Association, said consumers stung by $4-per-gallon gas are shifting toward utility bikes and away from recreational versions. That's forcing bike shops to change inventories and offer more training for consumers who may not have ridden a bike in years, he said.
Plenty of stores that have benefited from shoppers' woes are hoping to retain them when the economy rebounds.
Andrea Thomas, executive vice president of private brands at Wal-Mart, thinks many shoppers will stick with store labels since the quality has improved.
Edwards, of Wentworth Hauser and Violich, agrees that new fans of discounters will keep buying at discounters as long the products measure up.
At the Alexandria Shoe Repair and Leather Service in Virginia, sales have increased 18 percent since February.
"I am seeing a younger crowd who lives in the disposable world," said owner Barbara Steube. "They are learning an economics lesson. They will see the benefit of the savings and how much money they walk away with when they fix their shoes."
Writers Emily Fredrix in Milwaukee and Mae Anderson in New York contributed to this report.
Copyright © 2008 The Seattle Times Company
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