Meet the Prudent Consumer
November 17, 2008,
When I read last week that Sears was getting back into the layaway business for the first time in nearly 20 years, I sent a colleague a facetious e-mail reading: "Why, it's just like the '60s!"
As the credit crisis unfolded over the past few months, I've been thinking about something my mother said one day (in the '60s) when we were behaving — as all children do — like ingrate kids: "We go into debt to buy you kids Christmas presents, and it takes us two months to pay it off."
The concept then was that credit is something you tap only on occasion and then pay down quickly — as opposed to a permanent cloud of obligation that elevates one's standard of living. Different eras. But I think it may be an era that's coming back.
Last month, then-candidate Barack Obama hit the nail on the head when he told Time magazine: "The engine of economic growth for the past 20 years is not going to be there for the next 20. That was consumer spending. Basically, we turbocharged this economy based on cheap credit." Those days are over, Obama predicted, "because there is too much de-leveraging taking place, too much debt."
I think he's right. I think America has embarked on a spending diet, one that will realign peoples' fiscal priorities. How many television sets does a family really need? How many computers? How many phones?
In the past couple of decades, the retailer/supplier industry has experienced 'consolidation' in terms of creative destruction — weaker players collapse and cede the field, allowing stronger companies to expand even further.
There is likely a new consolidation at hand, a consumer spending consolidation. Consumers will still have needs and wants, but they may be more prudent about how they satisfy the latter.
As the consumer shifts priorities, the industry will need to be out in front. Disposable luxury — on the order of H&M-style fast fashion, for example — is probably on the way out. Value, durability, performance — those qualities will become more important than ever.
We are passing into a new era. The perils for the industry are easy to identify, but there will be opportunities, too. We all have to be vigilant in seeking them out.