BIG Executive Briefing
Economic & Consumer Insights for Marketing Executives

 

July 2008 (Respondents surveyed 7/1 - 7/8/08)

Talking Points:

§         Good news and bad news regarding consumer confidence

§         Spending sentiment echoes post-Katrina era

§         U.S. employment outlook continues to sour

§         Financial Mantra: Decrease Overall Spending

§         5 Year Trend: Gas Price Impact

§         Accessories Report: Shoes and Handbags

§         90 Day Outlook brightens from June for several categories

§         Junior may go back to campus with a new computer

§         What’s Hot?  Is there that much nostalgic appeal for Vinyl Records?

 

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

 

We’ve got good news and bad news regarding consumer confidence in July…with gas prices resting not-so-comfortably at above $4/gal as well as the faltering housing market, the war in Iraq, the credit card crunch, etc. etc. etc., fewer than one in five (18.8%) are confident/very confident this month in chances for a strong economy…while this is 29 points lower than 47.8% one year ago (the BAD), it’s flat with June’s record low reading, ending the confidence freefall that began in October 2007 (the GOOD).

 

With the Presidential battle just beginning to heat up, consumers are feeling a bit more skittish about political and national security issues…almost one-quarter (24.4%) continue to worry, up a point from June (23.3%) and rising 6+ points from a year ago (18.0%).

 

With no relief from gas prices in sight, spending sentiment echoes the post-Katrina era…half of consumers (50.0%) contend they’ve become more practical in their purchasing, rising several points from June (45.9%), more than 10 points from July ’07 (38.8%), and the highest reading since October ’05 (50.1%).  It appears that retailers hoping to ring up sales for the back-to-school season may have trouble persuading consumers to put more than the basic pencils and paper into their shopping carts.

 

Consumers don’t appear to be willing to give into the gimmes anytime soon…almost three in five (58.1%) say they focus on needs over wants in spending, up from last month (53.8%) as well as last year (47.4%), and again the highest reading since a post-Katrina 58.5% (October 2005).

While the tight economy may have practical parents schooling children on the value of a dollar, it seems that many of us are learning our “green” lesson…more than one in five (21.6%) contend they’ve become more environmentally responsible in their daily lives.

 

 

Although confidence flatlined in July, expectations for the U.S. employment environment continued to sour…62.3% now contend that layoffs will continue to increase, up from 61.6% last month and a new high.  About a third (31.2%) predicts they’ll remain the same (flat with 31.4% last month), while a scant 6.5% hope for fewer (v. 7.0%).  Personal concerns with becoming laid off remain relatively stable…6.0% fear the pink slip, compared to 6.2% in June.

 

With the majority (54.8%) feeling less wealthy than they did one year ago, conservatism is the name of the game as consumers attempt to balance their budgets…for the second consecutive month, decreasing overall spending is the financial priority (39.2%) over paying down debt (35.3%), rising 10 points from 29.3% a year ago.  An increasing number of consumers also plan to increase savings (26.9%) and pay with cash more often (23.8%).

 

With the Dow sliding below 12K at the end of June, bearish investors are more hesitant to take their money to Wall Street…fewer than half (47.8%) contend they would definitely or probably invest in the stock market, down three points from June (50.6%).  However, a few bulls may remain…investors planning to buy stocks increases slightly to 9.9% (from 9.5% last month), while only 4.8% plan to sell (v. 5.2%).

 

With drivers topping off their fuel tanks at a current $4.10/gal (source: AAA), spending on other goods continues to suffer…among the 84.9% currently affected by gas prices, almost half (46.9%) say they’ve cut back on dining out, up from 30.8% one year ago (when gas prices were “only” fluctuating around $3.00/gal).  Drivers are also making spending reductions on vacation/travel (45.5%), clothing (39.5%), high-dollar durables (30.9%), and groceries (27.8%) to cope.  As pump prices escalated from $2.00/gal in 2004 to $3.00/gal in 2007, spending cutbacks on vacation, dining out, and groceries remained relatively stable.  However, crossing the $4.00/gal mark in 2008 appears to be the straw that broke consumers’ back pockets:

 

 

The vast majority of consumers (82.7%) are bracing for even higher budget-busting prices at the pump come August 1…only 15.0% contend they’ll remain at current levels, while a minor few (2.4%) are holding out for a decrease.  Consumers are predicting an average price of $4.44/gal early next month, rising from the $4.39 expected on Independence Day (which – whew! - was overestimated).

  

 

Although more consumers prefer to shop most often for Women’s Clothing at department stores (27.2%) over discounters (21.0%) and specialty apparel stores (14.8%), there’s still one big discounter at the helm in this category…Wal-Mart leads with 12.4%, down half a point from July ’07 (13.0%), while rivals Kohl’s (8.5%), JC Penney (6.0%), Macy’s (5.4%), and Target (2.6%) make small share gains from one year ago.

 

Over on the Men’s side, Wal-Mart’s got a more substantial lead with 15.0% shopping there most often, relatively flat from July ’07 (15.2%).  Kohl’s (8.8%) and JC Penney (8.5%) follow, each gaining from a year ago (8.1% and 7.8%, respectively)…Macy’s (4.9%) and Target (3.4%) round out the top 5.

 

Completing the trifecta of Clothing, consumer preference share in Children’s for Wal-Mart (13.3%) nearly triples that of its nearest competitor, fellow discounter Target (4.7%)…Kohl’s (4.4%), JC Penney (3.4%), and Gap (2.1%) complete the top 5.

 

However, in the Shoe department, Wal-Mart isn’t quite so sure-footed…the EDLP pioneer has an ever-so-slight lead (11.8%) over discount specialty rival Payless (11.7%) in July as the battle for the top spot in this category rages on…though with 71.7% of consumers shopping most often at a particular store for Shoes based on price, both contenders maintain a substantial lead over the rest of the department and specialty store-filled pack: Kohl’s (4.9%), DSW (3.7%), and JC Penney (2.9%). 

 

While selection (55.9%), quality (40.3%), location (34.9%), and newest styles (13.8%) follow price (71.7%) as top reasons to shop a Shoe store, motivation to shop can vary on a store-to-store basis.  Among the top 5 Shoe retailers, Wal-Mart and Payless customers remain loyal to price and location, while Kohl's, DSW, and JC Penney customers are relatively more inclined to choose their stores because of selection and quality.  How about that service darling Nordstrom?  Although service (43.0%) is fourth here, these shoppers are fiercely tied to selection and quality over price:
 

 

Though Wal-Mart and Payless are tangled frontrunners for Shoes, according to July’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 within the past year) and where a positive rating spells net growth to a retailer, these stores may face tougher competition in the long term...the discount king and the discount specialty both face customer deficits, with -2.9 and -2.2 CMI ratings, respectively.  While high prices (22.9%) and inconvenient location (15.3%) were the top reasons for customers in general to switch stores, these prolific discounting leaders may be more plagued by complaints of size unavailability (14.9%) and poor selection (14.5%).

 

Further accessorizing…among the 64.1% of women who purchased one or more Handbags in the past year, most (55.5%) purchased in a department store over discounters (39.2%), specialty stores (15.4%), and online (14.3%).  Why buy?  Need was the top reason to pick up a new bag (38.6% said so), followed by sales or promotions (36.6%), impulse (35.9%), tiring of a current bag (34.2%), and seasonal changes (20.4%).  Though 12.7% begged the question:  Who needs a reason to buy a new handbag?  Coach (8.9%) tops the list of Handbags purchased most recently, followed by Liz Claiborne (2.9%), Nine West (2.5%), and Dooney & Bourke (2.1%). 

 

Flipping to a more testosterone-filled category…Electronics.  Best Buy is the best bet among consumers with 28.5% shopping there most often, up slightly from 28.1% last year.  Wal-Mart (17.8%) continues in a strong second place position, while Circuit City (7.0%), Sears (2.4%), and Target (2.3%) follow. 

 

While Wal-Mart continues to lead in Sporting Goods, does second place Dick’s have the plays to rise to #1?  The big discounter leads in this category with 12.1% shopping there most often (down from 14.1% one year ago), while Dick’s is less than a point behind with 11.4% (up from 9.9% in July ’07)…stay tuned to this game.  Sports Authority (3.6%), Academy (2.7%), and Big 5 (2.4%) trail the two varsity players.

 

With national presence and EDLP offerings for cash-strapped practical consumers, Wal-Mart continues its dominance in the food aisle with 16.1% shopping there most often…grocers Kroger (6.2%), Publix (3.5%), Safeway (2.4%), and Stop ‘n Shop (2.1%) follow the leader.

 

Wal-Mart also continues on a very solid foundation where Health & Beauty Care is concerned…27.8% contend they shop the big W most often for this category, more than triple the share of its nearest “competitor,” CVS (8.4%).  Walgreens (8.1%), Target (5.6%), and Rite Aid (2.8%) round out the top 5.

 

Have Wal-Mart’s gains in Prescription Drugs eroded the shares of leaders Walgreens and CVS?  The two druggists continue to lead with 14.4% and 13.2%, respectively, but the big discounter – along with its industry-changing $4 generic drug program – have made big gains in the past year, rising from 8.4% share in July ’07 to a current 10.4%.  Rite Aid (5.1%) and Target (1.9%) follow.

 

BIGresearch shows that Wal-Mart is making strides in Prescription Drugs across the demographic board, but according to our latest Retail Ratings Report (available for 12 major categories), women are making a beeline for the discounter’s Rx counter and increasingly foregoing druggists Walgreens and CVS: http://www.bigresearch.com/cast-members/big-cias-rrr-june08-drugs.pdf.

 

 

With the Back-to-School season on the horizon, the 90 Day Outlook for several clothing categories as well as Shoes brighten from June, according to the BIGresearch Diffusion Index (those who say they’ll spend less subtracted from those who will spend more).  However, the macro-economic effects of rising gas prices, falling confidence, and a shaky housing market portend a slower selling season for retailers compared to last year:

Retail Merchandise Categories - 90 Day Outlook

(July 08 compared to June 08 and July 07)

‘Tis the season for Back-to-School (and College) purchases: despite the gloomy outlook for the economy, it appears that practical consumers are still willing to invest in Junior’s educational needs (perhaps with a little help from those stimulus checks)…six month purchase intentions for Computers rises from June (9.7%) to 10.5% this month, flat with last year (10.7%).  Additionally, almost one in ten (9.5%) plan to buy a TV, rising a point (8.5%) from a year ago.  However, compared to last year, purchase intentions for all other high-dollar durables declines: Furniture, Home Appliances, House, Jewelry/Watch, Major Home Improvements, Stereo Equipment, DVD/VCR, Digital Camera, and Vacation Travel.

 

Planned purchases for Autos also declines from July ’07 (12.2%) to a current 9.4%, but what’s going on in the garages of those who have made a recent purchase?  While the majority (59.7%) still opt for cars compared to July ’06 (56.9%), it appears that over the past two years, more fuel-efficient hybrids and cross-overs are denting the market share for gas guzzling trucks, SUVs, and mini-vans:
 

 

 

It appears that the organic movement is having a big impact: 84.6% say Farmer’s Markets are what’s hot this month.  Additionally, 4 Day Work Weeks, Flea Markets, and Telecommuting are heating up the majority of our green-minded and practicality-bent consumers.  Wedge Sandals and Mineral Make-up are making an impact with the female crowd, while younger men are lured to Las Vegas and highly anticipate The Dark Knight.  What’s Not?  They may have their fans among nostalgic collectors, but for 72.4% of us, Vinyl Records would be more functional as really big beverage coasters.

 

 

Sincerely,


                                                                 

 

 

Editor

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