Inflation Worries Send Consumers Back to Discount Retailers

The discounters are back in vogue as inflation rears its ugly head.

That's the verdict from ChangeWave's latest consumer survey, which shows a large-scale movement to discount retailers driven by skyrocketing inflation and an overall spending environment that continues to slow.

The ChangeWave survey of 4,735 consumers, completed April 7th, looked at spending for the next 90 days.

In a clear sign the economic downturn isn't over yet, this is the third-consecutive ChangeWave survey in 2008 showing a recession in consumer spending. However, the current survey does contain one small glimmer of hope - the actual rate of spending decline appears less severe than in either of the previous two surveys.

Better than two-in-five U.S. respondents (42%) say they'll spend less over the next 90 days than they did a year ago - 3-pts worse than our February 2008 survey. Another quarter (25%) say they'll spend more - unchanged from previously.

Going forward, however, the most disconcerting finding isn't just tighter spending; it's the huge and growing toll that inflation is having on consumers.

Inflation Rears Its Ugly Head

We asked those who said they are spending less to tell us why, and Inflation was by far the greatest concern, cited by nearly half of respondents (46%; up 6-pts since February). In a related finding, 43% pointed to Higher Energy Costs as a reason they'll spend less, a whopping 11-pt jump since the previous survey.

Discounters Transform Retail Shopping

Sharply lower spending and increased inflation - coupled with deteriorating home values - are conspiring to produce an increasingly beleaguered and worried American shopper.

• The survey shows half of respondents think the economy is going to worsen over the next 90 days, compared to just 14% who think it will improve.
• Since November 2007 there has been a 76% jump in the percentage saying they are unsatisfied with their personal finances (from 21% to 37%).

But the phenomenon of the worried consumer represents great news for discount retailers and wholesale clubs. Going forwards, Costco (COST) (Net Score = +8) is once again the biggest winner among shoppers, while Wal-Mart (WMT) (+1) also shows positive growth for the next 90 days, though 1-pt less than previously.

Note that Costco and Wal-Mart were also the two big winners in our previous survey (February 2008).

On the downside, Sears (SHLD) (Net Score = -10), Bed Bath & Beyond (BBBY) (-10), Linens N Things (-8), and Macy's (M) (-8) all show considerable weakness going forward, as do JC Penney (JCP) (-6), K-Mart (SHLD) (-6), and The Gap (GPS) (-6).

Where Has Spending Slowed The Most?

Once again, it's spending on consumer electronics (-8 pts) that is registering the biggest slowdown of any category. In fact, it's the weakest 90-day outlook for electronics spending ever recorded in a ChangeWave survey.

Restaurant Spending (-2) also looks particularly weak going forward as does Durable Goods (-3).

To top it off, the survey points to a relatively small number of consumers using the special tax rebate check they'll be getting this spring to buy consumer goods. Rather, consumers appear far more likely to use defensive tactics - like saving money or paying off debt - during this period of economic uncertainty.

When you couple all of the above with inflation's increasingly sharp toll, there is little in the current survey to suggest the bottom has been reached in the consumer spending downturn.

Jim Woods co-wrote this article.

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This article summarizes the results of a recent ChangeWave Alliance survey. The Alliance is a research network of 15,000 business, technology and medical professionals who spend their everyday lives working on the front line of technological change. For more info on ChangeWave, or to sign up for real-time alerts email on the hottest technologies and companies, click here.

Comments

[billddrummer]

It's true that consumer electronics is suffering the biggest decline right now. As an employee at BBY, I've seen a softening of demand across all market segments--computers, digital imaging, personal electronics, TVs and stereos, and appliances. Those shoppers that are in the marketplace are looking for bargains, and snapping up last year's models of products to get good discounts. I personally think it will get worse before it gets better.