BIG Executive Briefing
Economic & Consumer Insights for Marketing Executives

 

February 2008 (Respondents surveyed 2/5 - 2/12/08)

Talking Points:

§     Consumer confidence reaches five year low

§     How are consumers planning to spend their stimulus checks from the government?

§     Practicality in purchasing remains stable

§     “More” layoffs expected by majority of consumers

§     Drivers expect $3.11/gal at the pump on St. Patrick’s Day

§     Close to the majority revel in familiar fashion labels

§     Consumer Migration: Electronics

§     60%+ shop for Organics…where are they headed?

§     90 Day Outlook brightens from January, down from February ‘07

§     What’s Hot?  Acting like a responsible adult…

Notice: The video briefing is also now available on YouTube!  Please click here to view the January edition.

 

Every pundit is throwing around that word recession, and it appears that consumers unfortunately agree…only one in four (26.2%) are confident/very confident in chances for a strong economy in February, a five year low.  What difference a year – and a sinking housing market, credit collapse, and record prices at the pump - makes…back in February 2007, twice as many consumers (53.2%) held high hopes for the future of our economy:

 

 

With the ink still drying on Congress’ stimulus package, will the rebate checks lead to an influx of spending on goods and services?  About a third (30.3%) contends they’ll save the money in their piggy banks, a quarter (25.4%) will use it to pay down credit cards, while 15.7% say they’ll pay down debt (installment loans).  When it comes to spending, it’ll likely be the grocers and discounters who will benefit as 14.6% reveal that they’d purchase necessities with their checks…that number climbs among those earning under $50,000 (22.5%).  And while those aged 18-24 are the most likely group to save their checks (39.7% say so), this age bracket is also the most likely to use their checks toward paying off student loans (14.9%), buying apparel (13.3%), and purchasing electronics (11.2%).

 

No matter your political party, with Bush exiting the White House change is on the way on Capitol Hill, but will the shake-up provide new hopes for consumers or increased anxiety?  This month, more than one in five (20.6%) say they worry more about political and national security issues, up more than two points from January (17.9%) and the highest reading since October 2006.

 

While confidence in the economy is plummeting, retailers should be relieved to know that practicality remains relatively stable…two in five (40.2%) contend that they’ve become more practical in their purchases, down a point from January (41.2%), though still on the rise from ’07 (38.7%).

 

Further proof that consumers may be coaxed into spending (and why retail sales showed a slight improvement in January)…those focused on needs over wants in spending declines two points from January (49.9%) to 48.0% this month, stable with February 2007’s reading (47.8%).

 

 

Consumers envision a rocky road ahead for the employment outlook…the majority (50.4%) contend there will be “more” layoffs in the next six months, up from 41.5% in January and the highest reading since March ’03 (50.4%).  More than two in five (43.1%) predict layoff levels will remain the same (v. 50.4% last month), while 6.6% optimistically assert “fewer” (v. 8.0%).  While consumers foresee a dreary outlook for employment, it seems they have the “it’s not going to be me” syndrome for who’s to get the pink slips…5.5% fear becoming laid off, up slightly from January’s 5.2%.

 

With close to the majority (46.4%) feeling that there is "too much month" at the end of their paychecks all or most of the time, it should come as no surprise that fewer consumers are planning to become financially more conservative…this month, 37.3% contend they plan to pay down debt over the next three months, flat from January (37.1%), though down from one year ago (40.4%)…those planning to increase savings (28.7%) up slightly from January (28.3%) and down as well from ’07 (31.1%).  Plans to decrease overall spending (29.3%) and pay with cash more often (20.2%) decline from 33.7% and 23.0% last month, respectively, and remain flat with ’07.  Stay tuned to see how the government stimulus package (with checks to begin arriving in May) affect consumers’ financial plans.

 

With the Dow flirting with the 12K mark in the past month (and consumer sentiment taking a nosedive), investors are feeling a bit bearish about the market…this month, 53.1% of investors contend they would definitely/probably invest in the stock market, down more than eight points from January (61.2%).  Investors planning to buy stocks declines slightly from January (11.5%) to 11.1%, while those planning to sell also declines from 5.8% last month to 4.9%.

 

With pump prices rising from $2.227/gal one year ago to today’s average $2.972/gal (source: AAA), it should come as no surprise that driver’s budgets are increasingly strained by additional fuel expenditures.  While two in five (40.5%) are attempting to cope by simply driving less, more than a third say pump pressures have led them to reduce dining out (35.3%) and decrease vacation/travel (33.6%).  Additionally, 29.8% are spending less on clothing while 22.4% are delaying a major purchase, such as a car or furniture:

 

 

However, it appears that drivers are easing up on their pricing predictions come St. Patrick’s Day…while half (49.9%) contend that pump prices will rise through March 17 (compared to the 69.8% who predicted “more” at Valentine’s Day), 44.2% assert they’ll remain the same, while 5.8% call for a decline.  Consumers are predicting an average pump price of $3.11/gal at St. Patty’s, $0.16 lower than the $3.27 forecasted for Valentine’s Day.

  

 

While the outlook for the economy has taken a turn for the worse, it’s encouraging to note that consumers’ fashion sense hasn’t taken the same path…close to the majority (45.1%) reveal that they revel in familiar labels when it comes to clothing, stable with one year ago (45.3%).  With masstige offerings (prestige labels available to the masses) increasingly available on store shelves, it should come as no surprise that consumers’ liking for labels has grown through the years:

 

 

Although consumers in general prefer department stores (27.0%) over discounters (19.0%) and specialty shops (14.2%) as the stores shopped most often for Women’s Clothing, the big W proves it’s still the diva in this department…11.4% contend they shop Wal-Mart most often (down from 11.9% in ’07), followed by the 8.1% who shop Kohl’s (gaining from 7.6% in ’07)…JC Penney (6.1%), Macy’s (5.8%), and Target (2.4%) round out the Top 5.

 

Wal-Mart’s got a more comfortable lead over Kohl’s in the Men’s section, though the department darling has gained over the past year in this category as well…the complete Top 5 (February ’07 shares in parenthesis): 1. Wal-Mart 13.9% (14.4%), 2. Kohl’s 8.5% (7.7%), 3. JC Penney 8.3% (8.8%), 4. Macy’s 5.2% (5.0%), 5. Sears 3.3% (3.4%).

 

In the latest Shoe Wars saga, the big W posts a not-so-big win over Payless for the top shop for footwear…Wal-Mart’s got a slight edge over the discount specialty with 10.6% share shopped most often to 10.4%, respectively.  Kohl’s (4.6%), JC Penney (3.0%), and DSW (2.9%) round out the Top 5.

 

Switching gears (literally)…for Electronics, one in three consumers (32.4%) say their best bet is Best Buy…Wal-Mart (18.2%), Circuit City (7.8%), Sears (2.8%), and Target (2.2%) round out the Top 5.  Price (70.8%) tops the list of reasons to shop a particular store for video games, TVs, stereo systems, and the like, followed by selection (55.6%), location (45.9%), quality (36.5%), and service (26.4%).  One in five (20.2%) consumers also value knowledgeable salespeople.

 

Word of mouth is a powerful form of advertising beyond the direct control of marketers, so which retailers may be benefiting from positive press from consumers?  Using the Net Promoter® Score* (NPS), respondents were asked to rate the likelihood that they would recommend the store they currently shop most often for Electronics on a scale from 0 (Not at All Likely) to 10 (Extremely Likely).  Among the top ten stores for Electronics, Amazon and Costco received the highest ratings from customers, while discounters Wal-Mart and Amazon are the least likely to be recommended to others:

 

 

* Net Promoter, NPS, and Net Promoter Score are trademarks of Satmetrix Systems, Inc., Bain & Company, and Fred Reichheld.

 

It appears that positive word of mouth has benefited Best Buy over the past year…According to this month’s Consumer Migration Index (CMI), which tracks those who have immigrated to a store (new customers within the past year) against those who have emigrated (left in the past year) and where a positive rating spells net growth to a retailer, finds that Best Buy (with a +6.3 rating) is poised to remain the biggest big box on the block, while Circuit City manages a customer deficit with a -3.7 rating:

 

 

Why would consumers be tempted to switch Electronics stores?  About one in three (27.8%) cited high prices and 21.4% complained of inconvenient locations…poor customer service (14.0%), poor selection (11.6%), and competitor advertising (11.4%) followed.

 

Big boxes continue to hammer the competition in Home Improvement/Hardware…with the majority shopping either Home Depot (30.0%) or Lowe’s (23.7%), the rest the Top 5 get left in the [saw]dust in this category: Wal-Mart (5.5%), Menards (3.6%), ACE Hardware (2.7%).

 

On the softer side, Wal-Mart continues to maintain a strong lead in the Linens/Bedding/Draperies category…17.4% shop the big discounter most often, followed by big box Bed Bath & Beyond (11.8%), JC Penney (6.9%), Linens ‘n Things (5.6%), and Target (5.4%).

 

National presence and EDLP help Wal-Mart maintain its solid lead in the Grocery aisle…16.5% shop there most often, followed by Kroger (6.0%), Publix (3.5%), Safeway (2.6%), and Meijer (2.2%).

 

But does Wal-Mart lead when it comes to consumers shopping for organics?  The majority (62.1%) shops regularly or occasionally for organic products, including produce (51.2%), breads (34.5%), cereals (32.8%), dairy products (30.7%), and juices (30.5%).  About one in ten (9.6%) of these “greenies” shops Wal-Mart most often for organics, followed Whole Foods (6.6%), Trader Joe's (5.9%), Kroger (4.6%), and Publix (3.0%).

 

More than one in four (27.6%) take to the aisles of Wal-Mart for Health & Beauty Care…Walgreens (7.5%), CVS (7.3%), Target (5.5%), and Rite Aid (2.5%) follow not-so-closely behind.

 

But it’s still the druggists who maintain the cure for prescription-medicated colds…15.2% shop Walgreens most often for Prescription Drugs, followed by CVS (13.1%).  Almost one in ten (9.8%), though, shop Wal-Mart most often, increasing from 7.9% one year ago…Rite Aid (5.3%) and Target (1.5%) round out the Top 5. 

 

 

Seasonal demand for spring merchandise, such as Easter apparel and lawn & garden supplies, lifts the 90 Day Outlook from January, according to the BIGresearch Diffusion Index (those who will spend less subtracted from those who will spend more)…However, the current economic outlook is expected to put a damper on spending compared to February 2007:

Retail Merchandise Categories - 90 Day Outlook

(February 08 compared to January 08 and February 07)

While the 90 Day Outlook has improved from January, consumers aren’t as likely to be considering purchasing high-dollar durables in the next six months…compared to last month and last year, purchase intentions are down for computers, furniture, home appliances, housing, jewelry, DVD/VCR, and digital cameras…major home improvements and vacation travel flat from January (though still down from ’07), while TV remains flat from last month and rises from last year. 

 

Six month purchase intentions for autos remain stable from last month at 11.8% (down slightly from 12.1% in February ’07)…among those planning to buy, almost two in five (39.8%) intend to avoid sticker shock and buy used, the highest reading since August 2007 (39.4%).  43.5% still plan to buy new, while 16.7% aren’t yet sure.  Accordingly, the average price auto buyers are planning to spend has lowered from $21,150 in January to $19,830 this month.

 

 

Consumers are thinking responsible thoughts this month…saving money, voting in the primaries, and reusable shopping bags top our list of what’s hot in February.  Additionally, young men unwind with American Gladiators and Guitar Hero, while men 35+ are rooting for Eli Manning.  Romantic getaways, Katherine Heigl, and clutch purses are favored by women 18 to 35.  What’s Not?  89.0% of consumers agree…if you weren’t born with zebra stripes, you shouldn’t wear them.

 

 

Sincerely,


                                                                 

 

 

Editor

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