Tuesday, April 17, 2012 | Edited by Daniel Moores
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Frugality Fatigue Spurs Americans to Trade Up Americans are buying more expensive makeup and sandwiches again as Estee Lauder Cos. and Dunkin' Brands Group Inc. get a boost from mid- to high-income customers. "Frugality fatigue" is driving a rise in retail sales among consumers who've "grown tired of putting off discretionary purchases," said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. Recent gains, including a 6.5 percent increase in February from a year earlier -- have been bolstered by improvements in consumer confidence and the labor and stock markets, along with some stabilization in home prices, he said. "This has been a long, drawn-out recovery; and for most people alive today, it's the longest they've had to conserve financially," said Price, who was among the top-ranked forecasters of quarterly gross-domestic-product growth for the two years ending in February, according to the most-recent data compiled by Bloomberg. "As their prospects improve, some pent-up demand is being released." Even with a less-than-predicted gain in U.S. nonfarm payrolls last month -- 120,000 compared with a median forecast of 205,000 in a Bloomberg survey -- the economy has added 635,000 jobs since December as unemployment fell to 8.2 percent from 8.5 percent, Labor Department data show. Meanwhile, the median price of existing homes climbed 0.3 percent in February from a year earlier, the biggest gain since July 2010, and the Standard & Poor's 500 Index is up 10 percent this year. 'Feeling the Wealth' Mid- to high-income consumers are "feeling the wealth effect" from an "amazing run" in the stock market, said Britt Beemer, chairman of America's Research Group, a consumer-behavior research and consulting company based in Charleston, South Carolina. The gain is leading some people to purchase name brands in lieu of generic or buy spring fashions before they've been deeply discounted, he said. Sentiment among people earning more than $50,000 fell to minus 12.2 in the week ended April 8 from a four-year high of minus 8.2 the prior week, according to the Bloomberg Consumer Comfort Index. Americans making more than $100,000 were the only income group with a positive reading: 9.7 (COMFO100), the second-best since January 2011. Estee Lauder's "high-end luxury" skin-care and makeup brands are growing "faster than average," benefiting from consumer trade-up and affluent shoppers, President and Chief Executive Officer Fabrizio Freda said Feb. 24 at the Consumer Analyst Group of New York conference. More Appetizers Customers at BJ's Restaurants Inc. eateries are ordering more appetizers or drinks with their meals, Chairman and Chief Executive Officer Gerald Deitchle said on a Feb. 16 conference call. As a result, the Huntington Beach, California-based operator is "selling more items per 100 guests today than we ever have in the history of the company." Americans will probably eat out more frequently in the next 90 days -- and spend more while doing so -- as their financial health improves, based on monthly surveys by RBC Capital Markets in New York. The portion of respondents who said they spent more than planned at restaurants during the past 30 days reached a record 31 percent in February, according to a quarterly survey. They predicted they will spend a combined $37.01 on restaurant meals each week for the next three months -- up 2.7 percent from a year earlier. 'Plodding Uphill' Consumer-spending plans rose at full-service restaurants for the second consecutive quarter and fell at quick-service establishments, suggesting people probably will trade up again after a year of trading down, said Larry Miller, an RBC analyst in Atlanta. Though dining-out intentions are "plodding uphill" from low levels, there's some momentum for a further recovery, he said. "This trend is encouraging because it's rooted in strong economic fundamentals," Miller said, noting that one of the most-cited reasons for increased purchasing plans was an improving economy. The U.S. will expand 2.3 percent this year, according to the median estimate of 75 economists surveyed by Bloomberg News from April 6 to April 11. Growth last year was 1.7 percent. Even customers at fast-food chains such as Dunkin' Brands doughnut shops are opting for a "better level of sandwich," Chief Executive Officer Nigel Travis said on a Feb. 9 conference call. This has helped to drive a "higher average ticket," with its smoked-sausage breakfast sandwich one of the best-performing, limited-time offers in the Canton, Massachusetts-based company's history, he said. 'Live with Less' As Americans have "learned to live with less," income-tax refunds could increase their willingness to spend, Beemer said. For the first time in six years, people will have money left over for discretionary purchases, after about two-thirds used a majority of these funds to pay off bills or credit cards in the past, he said, citing his company's late March survey of 1,200 consumers nationwide. The spending boost may be temporary, because rising gasoline prices are "the biggest nemesis to retail sales," Beemer said. The average gallon of regular unleaded is up about 22 percent to $3.91 (3AGSREG) -- near a three-year peak -- from a low of $3.21 in December, according to Heathrow, Florida-based AAA, the largest U.S. motoring organization. Some low-income consumers still are demonstrating frugality, and industry data show there's a "barbell" phenomenon, with fine-dining and fast-food restaurants doing well and middle-tier eateries struggling, Miller said. Fixed-Price Menu Ruth's Hospitality Group Inc., which operates upscale steak and seafood restaurants, introduced a fixed-price meal for these "special occasion" diners to keep sales up, even though "life is largely back to normal" for its more-affluent customers, Chief Financial Officer Arne Haak said at a March 6 conference hosted by Raymond James & Associates Inc. Kroger Co., with grocery stores in 31 states, also has seen bifurcated spending patterns, Chief Financial Officer Michael Schlotman said at a March 28 Telsey Advisory Group conference. Its "budget-minded" shoppers continue to "show significant signs of stress and are more likely to trade down" when there are signs of economic weakness. Even so, recent trends are encouraging, said Price of Ameriprise, a financial-planning and services company, who sees the disappointing March payroll numbers as an "aberration." As "employment prospects improve, consumers are going to put some additional spending back into the economy," he said. (Source: Bloomberg, 04/13/12) |
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Is the 'Year of Dragon' Driving a Home Furnishings Boom? The Year of the Dragon is considered to be the luckiest of the Chinese lunar years, with many couples rushing to marry or have a child during this auspicious time. But does the year also herald a home furnishings boom? Perhaps. International Business Machines is forecasting a surge in demand for home furnishings in the second quarter of this year. Its forecast calls for in-store sales of home furnishings to rise nearly 8% to $23.22 billion and online sales to surge 28.4%. Combined, the home furnishings market should grow 16.6% in the second quarter. Among the reasons cited is the effect of the Chinese Year of the Dragon, which began on Feb. 4. One factor is the desire to wed or have a child during this time, said Jill Puleri, global retail leader for IBM Global Business Services. These life-changing events often correspond with purchases of new homes and furniture. For doubters, the last Year of the Dragon, which occurred 12 years ago, was a banner year for sales of home goods. Growth that year ranked the third highest in a 21-year period, according to John Squire, director of digital marketing and analytics. There are a number of other factors, less reliant on lunar calendars, however, that should support this emerging trend. First, consumers are feeling more comfortable about spending in general, and since some consumers may feel it is unlikely they will move out of their home any time soon, they are looking to freshen up their surroundings. Don't expect shoppers to release this pent-up demand by buying large pieces of furniture, though. Instead, think about lower-ticket items such as linens, throw pillows, small appliances, and accent pieces, such as lamps. Essentially, the concept of "accessorizing" is moving from the apparel market to the home furnishings sector. Last holiday season, for example, consumers were purchasing jewelry to spruce up their outfits. Now, they are doing the same thing with home décor, Squire said. One factor is consumers are keeping items longer. Plus, with the average home size getting smaller and rental activity increasing, some consumers may have to downsize their décor. Look for retailers such as Bed, Bath & Beyond, as well as department stores such as Macy's, to benefit from the trend, Puleri said. The increase is a pretty substantial one from where it's been in the recent past. "One of the things we've seen is that the category has taken a back seat to others," Squire said. Shoppers have been more frugal and cautious with their money, and they have often traded from one category to another, as they worked to stay within their budget and prioritize their spending. Now that consumers may be at the point to release this demand, there is an opportunity for retailers to use what they know about their customer to reach out to consumers that may be ready to buy, according to Squire. If the signs of life in the housing market pan out to be the start of a turnaround, all the better for the sector. (Source: CNBC.com, 04/16/12) |
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Pet Food Shoppers Continue to Buy Premium The economy does not seem to affect pet food shoppers, who continue to migrate into the higher-preced pet specialty channel, according to U.S. Pet Market Outlook 2012-2013, a report from market research firm Packaged Facts. Although shoppers are value-oriented in buying other products, supermarkets and discount stores have seen their pet product shopper base decline. Similarly, while store brands overall are more important than ever across the consumer packaged-goods spectrum, pet food remains private-label resistant, an outpost of shopper loyalty to national brands. U.S. pet industry sales reached $56.67 billion in 2011, up from $54.56 billion in 2010. Although a modest 3.9% increase percentage-wise, the 2011 figure represents $2.1 billion in additional market value. Natural, organic, and eco-friendly products continue to advance, as do pet health products and services including medications, supplements, and insurance. Across all areas of the U.S. pet market, the net fallout from the recession has been greater market polarization, with healthy growth rates at the upper (pet specialty) and lower (strictly price-focused) ends of the market, and little growth in the middle, said David Lummis, senior pet market analyst at Packaged Facts. "Among super-premium pet products, natural (in its many expressions) remains the top selling point, while price plus a better selection of national brands has given price-focused channels like dollar stores and warehouse clubs a leg up," Lummis told Marketing Daily. "Meanwhile, retailers and marketers in core mass channels including supermarkets and discount stores have been struggling to sharpen their brand propositions in order to avoid coming across as ‘middle of the road.'" Packaged Facts' March 2012 Pet Owner Survey indicates that nearly nine out of ten pet owners agree with the statement "I consider my pet(s) to be part of the family," with 61% strongly agreeing and 28% somewhat agreeing, and that nearly two-thirds view their pet as their best friend, are spending more time with their pet, and enjoy purchasing products that pamper their pets. Pet owners therefore are highly receptive to products and services that replicate the ones they prize for themselves. Examples include veterinary procedures like chemotherapy, MRIs, and hip replacements; pet supplements featuring glucosamine or omega-3; human-grade pet foods containing superfruit or touted as gluten-free; designer pet supplies such as Burberry apparel and Simmons Beautyrest pet beds; and services including luxury boarding options and even a pet-specific airline, Pet Airways. (Source: Marketing Daily, 04/08/12) |
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