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The New Frugality?: The Sky that Never Fell


As analysts working at the epicenter of consumer behavior, consumer culture and commerce, we feel a keen responsibility to convey the most accurate portrait possible of today’s consumer environment.

This is forever a story about where we’ve come from, where we are today, and where we are headed.

Critical to the accuracy of that portrait is to make absolutely no assumptions as we move forward. Of course, it is never possible to eliminate all assumptions given the human proclivity toward curiosity, but one can formally restrain them via one’s investigative methodology.

So when the economic tsunami first crashed ashore in the early fall of 2008, we began our “formal inquiry,” knowing that we would be soon flooded with questions of all kinds.

As 2008 turned into 2009, the one constant was that analysts, marketers and journalists began talking and writing of a so-called value consumer. Though this consumer was never well articulated in any of the dialogues we encountered, the consensus was that this was a consumer looking for low prices due to the gloomy economic climate.

Never mind that we could not imagine any consumer interested in a valueless transaction (“Yeah, I used to buy worthless things, but now with the recession and all I need to focus on things that have actual value”) this value consumer was apparently more price sensitive, though in ways nobody could define with any consistency.

So we embarked upon our study The New Value Paradigm: The Theatrics of Thrift in which we sought to understand the value consumer with much more granularity. Released in the fall of 2009, we found that with regard to value, price was hardly a driving factor, typically finishing fourth or fifth behind dimensions like quality and usability. Likewise, we determined that current changes in consumer behavior were merely short-term shifts brought about to alleviate anxiety in a climate of uncertainty. And finally, all of these findings are in line with the long history of consumer behavior in times of recession and uncertainty.

To say that we were surprised by its reception was something of an understatement. Many disagreed vehemently, pointing to consumer spending figures to support their arguments. Some even mocked us for our “naive” perspective.

Knowing that consumer spending had always risen in a near perfect 1:1 correlation with time, we had never given this issue much thought. True, there were occasional peaks and troughs, but historically speaking, these were but near-term aberrations.

To address issues of the economy, consumer spending and value in greater detail we released a comprehensive white paper entitled: On Frugality, Value & The Post Recovery Consumer in February of 2010. There we noted that consumer spending was already on the rise, and that if one were to remove automobiles and gasoline from the calculations, consumer spending was already near the level achieved right before the collapse of Lehman Brothers. We likewise predicted a considerable rebound in consumer spending during the coming year.

Again came the chorus of dissent:

    There have been some reports lately questioning the prevailing wisdom that consumer behavior has been profoundly changed by what has been the greatest economic downturn since the Great Depression.

    The latest comes from The Hartman Group, a Washington State-based research and consulting firm, which challenges the popular assumption of a "new normal." While the firm acknowledges "the value story is complex," its new report, entitled The New Value Paradigm: The Theatrics of Thrift, asserts that consumers won't really cut back as much on their spending as they say, or as much as is being reported in the media….

    ...I have a lot of respect for The Hartman Group and its research, but I believe they are wrong on this one. And I am not alone. James Russo, vice president, global consumer insights for The Nielsen Co. -- the world's largest marketing and media information company and parent of Convenience Store News -- is sticking to his prediction at CSNews' Forecast Council meeting late last year that consumer spending will remain at "restrained levels" for the foreseeable future.

And as we stand here today, after consumer spending is back to pre-recession highs and with holiday sales ringing in above all analysts’ estimates, we offer an updated take on the economy.

As one might expect, our picture is very different from those espoused above. The New Frugality?: The Sky That Never Fell offers our most current perspectives on the recession, consumer behavior and what to expect in the coming months.

Predicting consumer behavior in fragile economic times is never easy, and we would be the first to admit that should a powerful recession reignite and consumers find themselves with less money, they will (by force) spend less money.

Meantime we believe there is much to be learned from a more thorough, less superficial analysis of consumer culture, consumer behavior and economy.


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Consumer Demographics Retail/Shopper Insights


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