BIG Executive Briefing
Economic & Consumer Insights for Marketing Executives

 

May 2008 (Respondents surveyed 4/29 - 5/7/08)

Talking Points:

§         Consumer confidence continues to decline

§         Practicality in purchasing down from April

§         Stimulus Check Special: How are consumers planning to spend their $?

§         Record high predict “more” layoffs

§         Pump prediction: $3.97 on Father’s Day

§         Wal-Mart strengthening in apparel

§         Consumer Migration: Home Improvement

§         Organic Shoppers: What’s in their carts?

§         90 Day Outlook predicts slow summer sales for retailers

§         What’s Hot…Iron Man or Indiana Jones?

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

 

Although government stimulus checks recently began arriving in mailboxes, climbing gas prices and a still unstable housing market continue to wreak havoc on consumers’ psyches as economic sentiment continues to decline…fewer than one in five (19.5%) contend they are confident/very confident in chances for a strong economy, down more than three points from April (23.0%), 25 points from May ’07 (44.7%) and a new low:

 

 

One bright side of this dismal economic reading is that consumers remain relatively secure about political and national security issues…with the Clinton/Obama primaries still making headlines, 22.0% concede that they continue to have concerns, down slightly from last month (22.3%), although heightened from one year ago (16.6%).

 

Perhaps retailer sales and incentives have coaxed scrimping and saving consumers out of hiding…about two in five (42.2%) contend they’ve become more practical and realistic in their purchasing in the last six months, down three points from April (45.4%), though still on an upward trend from May ’07 (36.7%).

 

Many have been sticking to a strict budget in order to cover rising costs for necessities, though with stimulus checks currently being deposited into bank accounts, consumers may be ready to open their wallets a bit, at least in the short-term…while the majority (50.7%) contend they are focused on needs over wants in purchasing, this figure has declined three points from last month (53.6%), however remains escalated from one year ago (44.8%).

 

Stimulus Check Special: How are consumers planning to use their gift checks from the government?  Given that piggy banks have been drained in prior months in order to pay increasingly for food and gas, it appears that more than one in three (31.0%) plan to save their stimulus checks…one-quarter (24.2%) plans to pay down credit cards, while 16.4% will use their checks to pay down debt (installment loans).  However, plans among those who are expecting a rebate check and those who still aren’t sure if they'll receive one differ slightly…those who aren’t sure are more likely to use the money for savings or gas purchases, while those who know it’s in the mail (or already in their bank account) are more apt to pay down debt and purchase necessities like groceries.  Some highlights:

 

 

 

With consumer confidence continuing to spiral downward, visions for the employment outlook follow the same dismal path…close to three in five (58.1%) are predicting “more” layoffs in the next six months, increasing slightly from last month’s record-setting 57.8%…one-third (34.6%) contend that layoff levels will remain the “same” (down marginally from April’s 34.6%), while the minority (7.6%) holds hope for “fewer,” flat from last month.  Consumers remain relatively stable in their personal job security this month (5.7%) compared to April (5.5%)…however, only 4.0% felt the same a year ago.

 

With grocery and gas expenditures increasingly taking a bite out of consumers’ budgets, it appears that savings are becoming the financial casualty…the majority (50.1%) feels that there is “too much month” at the end of their paychecks "all" or "most" of the time, compared to 45.9% one year ago.  As a result, more than two in five (43.6%) say they aren’t saving enough to meet their future needs (increasing from 39.5% in May ’07.)  This sentiment becomes more dire for those with children in the household:

 

 

Consumers are planning financial conservatism over the next three months, though savings plans weaken from ’07…paying down debt is top priority for 33.0% (rising from 32.2% one year ago), decreasing overall spending (32.1% v. 27.9% in ’07) continues to be a close second…one in four (25.0%) plans to increase savings, lowering a point from last May (26.0%), while one in five (20.8%) are attempting to pay with cash more often, up from 19.1% last year.

 

While the Dow is currently flirting with 13K, investors are still feeling bearish about their confidence in Wall Street…51.1% of investors contend they would definitely/probably invest in the stock market, down a point from April (52.1%).  One in ten (10.3%) investors contends they’ll buy stocks in the next three months, a slight uptick from April (10.1%), while 5.4% plan to sell, relatively flat with last month (5.5%).

 

Record high fuel prices have drivers feeling deflated as they pump gas in their autos in May…this month, 84.0% contend they have been affected by rising gas prices, up from 82.2% in April, 74.2% in ’07, and a new high.  To cope, consumers are resorting to taking fewer shopping trips (47.9%), shopping closer to home (43.7%), hunting for sales more often (39.8%), clipping more coupons (34.6%), and buying more store brands and generics (31.0%):

 

 

It’s realism as opposed to optimism when it comes to predicting where gas prices are headed in the near future…a whopping 85.9% contend that gas prices will continue to hike through Father’s Day…about one in ten (12.1%) predict they’ll remain stable, while a measly 2.0% hope for a decline.  Consumers portend an average pump price of $3.97/gal come Dad’s Day, which may be [frighteningly] on target, given their prediction for Mother’s Day ($3.63) and today’s current average price of $3.645 (source: AAA).

  

 

With consumers left with less disposable income to spend, could the discounter known for big rollbacks be making a big comeback in apparel?  This month in Women’s Clothing, Wal-Mart leads with 11.3% shopping there most often, up from 10.9% one year ago…second place Kohl’s (known for cheap chic offerings) increases similarly, from 7.6% in ’07 to a current 7.9%.  JC Penney (5.7%), Macy’s (5.2%), and Target (2.5%) round out the top 5.

 

The Bentonville behemoth makes even bigger gains on the Men’s side…14.2% head to Wal-Mart most often for Men’s Clothing, up more than a point from last year (13.1%), trumping JC Penney (7.8%), Kohl’s (7.7%), Macy’s (4.9%), and Sears (3.3%).

 

However in the battle of the Shoe Wars, Wal-Mart once again concedes to Payless…in May, 10.8% head to the discount specialty most often (down marginally from 11.0% one year ago), while 10.2% shop the discount giant most often (up from 9.7% in May ’07).  Kohl’s (4.3%), JC Penney (2.9%), and DSW (2.5%) continue to compete from the sidelines.

 

Big boxes decline as Wal-Mart picks up steam in Linens, Bedding, & Draperies…the big discounter maintains a substantial lead in this category, with 16.9% shopping there most often, up from 16.0% one year ago…#2 Bed Bath & Beyond declines a point from ’07 to 9.8%, while Linens ‘N Things (who recently filed for bankruptcy protection) falls flat at 5.1%, down half a point from a year ago.  The complete top 5 (May ’07 shares in parenthesis): 1. Wal-Mart 16.9% (16.0%), 2. Bed Bath & Beyond 9.8% (10.7%), 3. JC Penney 6.0% (6.4%), 4. (tie) Target 5.1% (4.9%), Linens ‘N Things 5.1% (5.6%).

 

With the majority shopping Home Depot (29.8%) or Lowe’s (24.6%) most often, big box domination continues in Home Improvement/Hardware…Wal-Mart (5.0%), Menards (3.4%), and ACE (2.7%) round out the Top 5.  However, while Lowe’s has made small gains over the years (from 2002 readings in the teens), Home Depot has declined since posting a high of 40.9% in July 2002.  With the proliferation of these big box stores and the increasingly attractive ability to pick up a paint brush along with groceries at one-stop-shops like Wal-Mart, it appears that consumers are becoming less discriminating with their store choice…what’s most important to consumers?  The majority (57.9%) choose a Home Improvement store based on price, 54.3% indicate location…selection (52.2%), quality (37.9%), and service (26.1%) follow.

 

It appears that the disparity between Home Depot and Lowe’s will continue to diminish in years to come…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 Home Depot is facing a large customer deficit with a -10.4 rating, while rival Lowe’s made a large gain (+13.8).  Wal-Mart and ACE are relatively flat:

 

 

Home Improvement shoppers of one year or less cited inconvenient location (20.8%) as the top reason to leave a particular store…high prices (18.7%), poor customer service (11.3%), long checkout lines (6.5%), and in-store experience (6.2%) followed.

 

Big discounter Wal-Mart is making big gains in Grocery…15.9% shop most often here, up more than two points from May ’07 (13.6%)…Kroger (6.3%), Publix (3.3%), Safeway (2.9%), Meijer and Shoprite (tied, with 2.0% each) round out the Top 5.

 

So how are consumers coping with increases in grocery prices?  Among the 87.1% of consumers who have felt the impact, 37.4% are buying more generics, 37.0% are shopping for sales more often, 34.5% are dining out less, 32.9% are relying more on coupons, while 32.0% are simply taking fewer shopping trips.

 

Although rising grocery prices have many budgeting the amount they spend in the supermarket, many still feel the "green" need to buy generally higher-priced organics…the majority of consumers (61.5%) contends they regularly or occasionally buy organic products, flat with August ’07 (61.7%).  Produce (52.8%) tops the list of organic products purchased, followed by breads (33.4%), cereals (30.8%), dairy (29.8%), and juices (29.5%).  Organic shoppers head most often to Wal-Mart (9.9%), followed by Whole Foods (6.7%), and Trader Joe’s (5.2%).

 

Wal-Mart continues to strengthen its position in Health & Beauty Care…the discounter leads with 27.2% shopping there most often (up from 26.3% a year ago)…druggists CVS and Walgreens follow with 7.2% apiece (both flat from ’07), while Target (5.3%) and Rite Aid (2.7%) round out the Top 5.

 

Though while Wal-Mart also makes year-over-year gains in Prescription Drugs, Walgreens and CVS maintain the stronghold in this category…15.5% and 13.1% shop the druggists most often, respectively, while Wal-Mart places third with 9.6% (up from 8.1% one year ago)…Rite Aid (5.8%) and Target (1.8%) follow.

 

 

The record low confidence reading and record high layoff expectations, coupled with other macro environmental factors, such as rising gas and grocery prices, combine for a gloomy 90 day purchasing forecast in May, according to the BIGresearch Diffusion Index (those who say they’ll spend less subtracted from those who’ll spend more).  With the 90 Day Outlook declining from last month as well as May ’07 for all categories, it appears that retailers may have a slow summer sales season on their hands:

Retail Merchandise Categories - 90 Day Outlook

(May 08 compared to April 08 and May 07)

Six month purchase intentions are similarly downcast among high dollar durables…compared to May ‘07, fewer consumers plan to buy autos, computers, furniture, home appliances, housing, jewelry/watches, major home improvements/repairs, stereo equipment, DVD/VCR, digital cameras, and vacation travel.  With the government stimulus checks on the way, it appears that many consumers intend to treat themselves to a new TV…8.4% plan to buy in the next six months, up from 7.7% a year ago.

 

 

With budgets stretched to their limits, it appears that consumers will be cooking up their own entertainment at home…backyard BBQs are what’s hot this month…compact fluorescent light bulbs also glow with green consumers.  And, while Iron Man raked in the buck$ opening weekend, it looks like it may get a run for its money when the fourth Indiana Jones installment releases…57.4% rated Indy hot, compared to 54.1% for the comic book superhero.  What's Not?  85% of consumers agree…this season’s gladiator sandals should have been left in Ancient Rome. 

 

 

 

Sincerely,


                                                                 

 

 

Editor

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