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Sounds Like Wishful Thinking

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.

The researcher also calls the new frugality a myth. "We've seen and heard it all before," said another report on the company's Web site. It cites media reports toward the end of the 1990-91 recession forecasting the "death of conspicuous consumption." That recession was followed by the Internet bubble. After the 9/11 terrorists attacks, pundits again predicted consumers would hunker down, cocoon and live more simply -- and then came the housing boom and "an eight-year credit-induced spending bender," according to Hartman.

Current frugality habits are but near-term responses to a climate of anxiety, according to the researcher, which pointed out that consumer product goods makers' median sales increased 10 percent last year -- down only slightly from 2007 median sales figures.

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. More recently, he told me: "For the past two years, consumers have moved through the worst of the recession mostly gripped by fear and uncertainty. As we analyze Nielsen insights into what Americans watch and buy, we see consumers recalibrating their balance sheets and accepting a new normal. With headwinds such as ongoing malaise in the labor market, a sluggish housing rebound and tighter credit, consumers are entering a period of restraint and pursuit of value."

Packaged Facts, the New York City-based research publisher also believes "frugal behaviors adopted during the recession are becoming ingrained and reflect a new normal" regarding consumer shopping, dining and eating preferences.

"The outlook for 2010 is best viewed with guarded optimism. Consumer food and beverage choices will reflect the latest social and demographic trends, while also continuing to show financial restraint when it comes to where consumers shop for food and drink, where they dine, and the item and meal selections they make," said Packaged Facts Publisher Don Montuori.

In January, the U.S. economy shed another 20,000 jobs. It appears we may be in the midst of a jobless recovery. Even before the housing bust and the credit debacle, the country was headed for trouble just based on simple demographics. The coming difficulties stem from the aging of the Baby Boom, and along with it, the whole U.S. population.

The underlying demographics do not bode well for a return to robust consumer spending.

Of course, some segments of the population will be relatively unaffected by economic downturns -- the ultra rich, for example. But unless your name is Tiffany or Neiman Marcus, you'll have to make value a key element of your offering for a long time to come. Waiting for consumers to return to their old spending habits sounds to me like wishful thinking, and not a business strategy.
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