Consumer Spending

Chief Industry Analyst, The NPD Group, Inc., Marshal Cohen, says, "Not so fast..."Curb Your Enthusiasm.” "While many reports have the consumer leaping out of their spending cocoon, we have to look at the total picture to get a true reading," said Cohen.

Why ‘Curb Your Enthusiasm?’ Cohen says, "In November, sales were up and up quite a bit considering the pace at which 2010 was running.  December results aren't in yet, and if history tells us anything, it tells us not to count our chickens before they hatch…like any sporting event, it ain’t over ‘til it’s over.  December 2010 has also been a month with its challenges. Like…Christmas day fell on a Saturday and the storm the day after.  Then consumers spent more in November and took a break during the ‘Holiday Hiatus.’  Now we see a drop in consumer confidence and the rising in cost of living expenses. Expenses like gasoline that is 3 dollar a gallon (on average in the U.S.) which isn’t a ‘deal-breaker’ but add in things like end of year tax bills that need to be paid, home heating costs as the winter weather kicks into high gear, food costs rising and I think you get the picture.  Consumers have less ‘extra’ money or less discretionary funds to spend.”

On Spending shifts.  “We saw November bring a shift in consumption.  Consumers went from a ‘spending cocoon’ last year where we didn't buy anything beyond necessities to this year consumers stepped out of the cocoon and moved towards ‘Frugal Fatigue,’" observed Cohen, “They were testing the waters and buying some ‘desirables’ as a reward for being so frugal during the past 15 months.  Now we are seeing the consumer reaching out even a bit further.” Cohen says that, “As deals were offered by retailers with promotions and door buster specials, November brought about the next phase.  This phase is where the consumer steps up to buy what I call ‘Necessary Luxuries. ‘Necessary Luxuries’ are those additional items that make your existing purchases even better.  Things like: upgrading to a newer cell phone to get faster service, adding surround sound to your already existing flat screen TV, or buying small handbags to compliment the collection of big bags that were bought prior to the recession. There are a host of ‘Necessary Luxuries’ that will either help to make the December numbers look very good, or if these purchases  dropped off again, it will make December feel less than stellar. 

Now what?  Cohen says, “This tells me to be careful before getting excited about Holiday 2010, being ‘the best ever’ as some are already calling it.  We need to wait and see.  I think we need to see that first, is the consumer truly carrying the momentum from November into December and beyond?  Second, is the consumer feeling pinched by these increases in the cost of living?  And third, will they keep seeking the ‘Necessary Luxuries’ that will carry the spending momentum forward.”

In conclusion, Cohen says, “When I suggest we "Curb Our Enthusiasm," I say that because not enough has been done for the consumer, yet. I think that 2011 is going to be a challenge if retailers and manufacturers particularly don't put new and exciting merchandise in front of the consumer and fast.  I believe that new and exciting products create those all important "Necessary Luxuries." Those new products stimulate spending growth. The ‘product status quo’ isn't going to stimulate growth, it will maintain spending.” Ending, Cohen says, “Remember basics maintain volume, innovation drives growth.”