Consumers

Valentine’s Day Spending: All Hearts and Flowers?

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Valentine's Day is hearts and dollarsWith the recession finally receding, are we now seeing an uptick in spending for Valentine’s Day — arguably the most romantic day on the calendar?

According to a January Consumer Intentions & Actions questionnaire conducted among ~8,900 participants for the National Retail Federation by survey firm BIGresearch, American adults over age 18 will spend an average of ~$115 on traditional Valentine’s Day merchandise this year. That’s up more than 11% over 2010, and collectively represents spending of nearly $17 billion.

But we have yet to return to the levels of Valentine’s Day spending that were reached in 2007 and 2008 – the highest on record.

Jewelry appears to be the big item on the Valentine’s Day shopping list. Approximately $3.5 billion is expected to be spent in this segment this year, which is up more than 15% from the ~$3.0 billion spent in 2010.

Dining out is another popular category, but its growth is not expected to be nearly as big as jewelry’s – just 3%. The six most popular categories as determined in the NRF study include:

 Jewelry: $3.5 billion
 Dining out: $3.3 billion
 Flowers: $1.7 billion
 Clothing: $1.6 billion
 Candy: $1.5 billion
 Greeting cards: $1.1 billion

[I was surprised at the greeting cards figure. True, cards are a lower-price item compared to the other categories, but the number still seemed pretty meager. It turns out that only about half of the consumers surveyed reported that they planned on purchasing a Valentine’s card, which was lower than I thought would be the case.]

Not surprisingly, younger adults (age 25-34) are expected to spend significantly more than their older counterparts. They’re projected to spend an average of nearly $190 on Valentine’s Day merchandise compared to only about $60 spent by adults over 65.

But it’s not just because of “sweet, fresh young love” versus “tired, worn-out old love.” It’s because young couples and young parents are often buying not only for each other, but also for their co-workers … their children … their children’s friends … and their children’s teachers as well.

And here’s another statistic that won’t surprise very many people: Women will receive Valentine’s Day gifts averaging around $160, which is double the value of gifts for men.

Now, that’s a dynamic that’s likely never changed … and probably never will!

The Limits of Delivering “Cheaper Value”

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Nano vehicle

Tata Nano car on fire
Tata Nano ... Tata "No-No"?
About a year ago, the international press was abuzz about the latest new “value” entry in the automobile business. Amid great fanfare, Tata Motors, part of India’s largest corporate conglomerate, was introducing the “Nano,” a car designed to appeal to India’s mass market.

The Nano, which can seat five people and has a surprisingly roomy interior for its size, carries a base price of only ~$2,200 — lower than any other car in the world — which proved irresistible to families of modest means whose finances had required that they make do with motorcycles or scooters before.

Some 9,000 Nano vehicles were delivered in July, but since then, sales have slowed dramatically – to just around 500 shipments to dealers in November.

How did Nano’s star fall so far, so fast – especially for a vehicle which Tata Motors thought was impressive enough that it planned to introduce it in other developing markets … then Europe … and finally to the United States?

Production delays have something to do with it. But the real problem is the performance of the car. Most alarming are reports that the vehicle can catch on fire, with one widely broadcast incident where a Nano caught on fire and was engulfed by flames on the way home from the auto showroom!

In response, Tata, while denying anything is wrong with the design of the Nano and studiously avoiding any language of “recall,” is offering to retrofit the automobile with extra safety features. It’s also extending the warranty on the car from 18 months to a solid four years.

Will these moves change the impression that the car is more of a “No-No” rather than a “Nano” and move its sales trajectory back into positive territory? Perhaps. But it’s interesting to note that sales of a rival “value” car made by Suzuki – the “Alto” – have now overtaken those of the Nano. The Alto carries a higher base price of $6,200, and yet it posted unit sales of ~30,000 in November, making it India’s best-selling car that month.

[The success of the Suzuki Alto in India is nice news for a company whose cars in the U.S. have been on a downward plunge all this year – with sales off ~42% in 2010 compared to 2009.]

The experience of the Nano and the Alto in India brings up an interesting question: Is it possible to make small, cheap version of products that are significant purchase items and win the confidence of a broad customer base?

To a degree, yes. But there are limits to “how low you can go” in value-engineering a product for performance and safety, below which customers just turn and walk away. (Or, in this case, drive away.)

Moreover, just like the experience of the Yugo or the Trabant, there’s a risk of forming a poor market image that’s impossible to shake off.

And in this particular case, the brand names don’t help at all. It’s just too easy for disgusted consumers to say “Ta-Ta” to Tata Motors and “No-No” to the Nano.

The “Skinny” on 2010 Holiday Spending

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Consumer Holiday Spending
Holiday spending on the rise? Yes, but ...
The “early returns” from this year’s Black Friday retail sales are quite encouraging. Online retail sales are experiencing an even bigger bump in activity. The question is, do these positive early results foreshadow a strong holiday season overall?

Each year, Gallup attempts to answer that question in advance by conducting a poll every November in which it asks U.S. consumers for a prediction of the total amount of money they plan to spend on holiday gifts. This year’s poll findings were published this past week.

And the results? The good news from the consumer economy’s standpoint is that the average personal spending expectation has risen to $714 for 2010, which is ~12% higher than last year’s $638.

The not-so-good news is that we’re still in the doldrums when measured against most of the previous decade. In fact, only in the years of 2009, 2008 and 2002 has expected personal spending been lower than it is this year.

If we take an average of the ten years covering 2000-2009, the expected personal spending found by Gallup’s survey is $747, which means that 2010’s dollar amount doesn’t even come up to the average of the past decade.

Here’s another interesting finding from the survey: Evidently, the increase in expected holiday spending compared to last year is being driven by only a small percentage of consumers. Half of the Gallup respondents reported they would be spending “about the same” this year, whereas one third reported they would actually be spending less.

The remainder – fewer than 15% — reported they would be spending more.

And all of that activity on the Internet? We can be sure a goodly amount of it is driven by the desire to find the very best price available. And to prove that out, the latest online holiday shopping report survey from rich media firm Unicast finds that more than half of consumers are using the Web to research and compare deals between online stores and retail outlets.

The bottom line on all this: It’s a mixed picture with a slight lean on the scale in favor of optimism. Which is a darn sight more positive than what we saw in 2008 and 2009.

Happy Chris-kwanz-ukah, everyone.

“Necessity or not”? Pew says Americans’ views are changing.

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Pew Center for People & the Press logoThe Pew Research Center fields a Social & Demographic Trends survey on a fairly regular basis which asks Americans if they think certain items are “necessities” … or a luxury they could do without.

Included in the survey are a variety of items ranging from automobiles and appliances to communications devices.

The 2010 survey was conducted in May and queried nearly 3,000 respondents. The results of this survey were released in late August, and they reveal that landline phones and television sets are quickly becoming less essential to U.S. consumers.

In fact, only ~42% of the survey respondents feel that a TV set is a necessity, which is down 10 percentage points from just one year ago.

Here is what respondents reported in response to being asked whether they consider each of the following items to be a “necessity”:

 Automobile: 86% (down 2 percentage points from the 2009 Pew survey)
 Landline phone: 62% (down 6 points)
 Home air conditioning: 55% (up 1)
 Home computer: 49% (down 1)
 Cell phone: 47% (down 2)
 Microwave: 45% (down 2)
 Television set: 42% (down 10)
 High-speed internet: 34% (up 3)
 Cable/satellite TV: 23% (no change)
 Dishwasher: 21% (no change)
 Flat-screen TV: 10% (up 2)

Of course, landline phones and TV sets have been fixtures of American life for as long as most of us can remember. But the Pew research shows this is now changing, and it’s especially so among those in the 18-29 age bracket. In fact, only ~30% of the younger age segment believe that having a TV set is a necessity.

As for landline phones, current government data show that only three-fourths of U.S. households have a landline phone, which is down from ~97% in 2000. Not surprisingly, going in the opposite direction are cell phones; today, more than 80% of U.S. adults use them, up from only about 50% in 2000.

The Pew survey results from 2010 versus 2009 reveal several other declines in “necessities,” but those declines are only slight and may be a result of the economic downturn. Instead, it seems clear that the major shifts are happening due to technological change, not because of the economic picture.

The Pew survey results don’t reveal too much that’s surprising … but it’s important to put some statistics to our broad hunches. And those stats are telling us that certain changes are occurring rapidly.

How We’ll Thank Dad on Father’s Day

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NecktiesDid you know that Americans will spend an average of over $90 on a Father’s Day gift this year? That’s the conclusion of the National Retail Federation’s annual Father’s Day Intentions & Actions Survey of nearly 8,500 U.S. consumers.

I was surprised, too. Maybe we’re a bit more frugal in the Nones household.

In any case, it’s clear that Father’s Day gifts have gone far beyond the traditional necktie. Around 40% of the NRF survey respondents reported that they’ll be treating Dad by taking him out to eat. And about one-third are taking the really easy way out by buying gift cards.

The remaining respondents are planning to purchase Father’s Day gifts that range from clothes to electronics.

Based on the survey findings, the NRF predicts that nearly $10 billion will be spent on Father’s Day gifts this year. Here are the largest categories:

 Going out to eat: ~$1.9 billion
 Clothing items: ~1.3 billion
 Gift cards: ~$1.2 billion
 Electronics: ~$1.2 billion
 Greeting cards: ~$750 million
 Tools and appliances: ~$575 million

As to where people will shop for their gifts, dear ol’ Dad will be proud to know how cost-conscious and efficient they’ll be in making purchases, since a majority of the respondents plan to shop at big box or discount stores, or make online purchases.

Incidentally, Father’s Day isn’t just for Dads anymore. In fact, only about half of the NRF survey respondents will be giving gifts purchased for fathers or stepfathers. The rest will be giving to husbands, sons, brothers, grandfathers … or just good friends.

Happy Father’s Day everyone.

U.S. consumers: More comfortable than ever making online purchases.

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Online purchasingHave U.S. consumers finally gotten over their skittishness about making purchases over the Internet? A newly released study from Javelin Strategy & Research suggests that they have.

The 2010-2014 Online Retail Payments Forecast report draws its findings from data collected online in November 2009 from a randomly selected panel of nearly 3,300 U.S. consumers representing a representative cross-sample by age, gender and income levels.

Based on the Javelin sample, nearly two-thirds of American consumers are now either “comfortable” or “very comfortable” with shopping online.

On the other end of the scale, ~22% of U.S. consumers continue to be wary of online purchasing; these people haven’t made an online purchase within the past year … or in some cases, never.

These figures suggest that the consumer comfort level with making online purchases is as high as it’s ever been. And how are consumers making their online payments? The Javelin study reports that among those respondents reporting online activities, the five most popular payment methods are:

 Major credit card: 70%
 Major debit card: 55%
 Online payment service such as PayPal®: 51%
 Gift card (good at one specific merchant): 41%
 Store-branded credit card (good at one specific merchant): 27%

Even with more than half of consumers using a debit card for online purchases, the total dollar volume of online sales attributable to debit cards is less than 30%. Javelin forecasts debit card share to continue climbing in the short-term, however, due to tighter consumer credit standards now in force.

Bottom line, the Javelin report suggests that despite the periodic horror stories that have been published about credit card information and other financial data being captured or mined off the Internet, the convenience and price/selection benefits of online shopping are winning the day with consumers. Not surprising at all, really.

No froth in the beer industry …

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Can it be possible? The Beer Institute trade association is reporting that U.S. beer sales are actually declining.

Chalk up one more piece of evidence showing that this economic downturn is a vastly different animal. In previous periods of recession, beer sales did not really suffer. Perhaps that’s because it’s been a relatively inexpensive discretionary item. If you’re feeling down about the economy or your personal finances, why not drown your sorrows in a nice cold one?

Not so this time around. The Beer Institute reports that domestic brew sales have declined 4% in the first two months of 2009 compared to the same period last year, while import beer sales are off a whopping 19%. Not only that, foreign beer sales registered a decline for the entire year of 2008 as well.

Shipments from Mexico have fallen nearly 14% so far this year compared to last, led by Corona. But Corona is still America’s top-selling foreign brew, beating Heineken by a long shot. Speaking of which … beer sales from Holland have declined by an even bigger percentage (more than 25%).

What should we make of these statistics? Are Americans now tightening their belts on absolutely everything?

Or maybe we’re doing for our health what we’re also doing for our personal savings rate. Perhaps switching to something better than brewskies – like heart-healthy red wine? We’ll have to wait for the latest statistics from the National Association of American Wineries to find out.