Consumer Spending Review

Do your habits match your neighbors?
What Are People Buying Now? What we're buying -- and not buying -- says a lot about how consumers are feeling these days.

It also says a lot about the American economy, considering that consumer spending accounts for 70 percent of all U.S. economic activity. Every time we go out to lunch, buy a new sweater or pick up a DVD, we're contributing to the retail sector, the biggest sector in the economy.

Last week, companies from Home Depot to Target to Saks reported results for their latest quarters. Some were strong, some were weak. All tell tales of the consumer: thrifty, staying close to home, and focusing on basics.

Here's a look at what people are and aren't buying.

HOME

What We're Buying: People are buying more garden products and paint, especially in areas with high foreclosure rates like California, according to Home Depot. CEO Frank Blake told investors that as homes are sold as part of the foreclosure process, that spurs sales of paint and carpet upgrades, since owners want to improve their new homes.

Lowe's reported that small projects were big winners in the second quarter -- only the paint and nursery categories were doing better than a year earlier. The company said consumers -- with an eye toward boosting the appearance of their homes -- bought a lot of mulches, seed, and patio blocks.

There was also solid demand in faucet repair and for repair parts for outdoor power equipment. Tiller sales were also strong as consumers planted more gardens.

What We're Not: Home Depot said consumers continued to limit their purchases of bigger items like appliances.

Purchases above $500 fell 16 percent compared to last year for Lowe's, which also noted last year's second quarter included the effects of a federal stimulus package that gave most consumers about $600, prompting sales of big-ticket items.

Sears said its decline in its home business, including appliances, continues to be affected by the state of the housing market.

Target said people limited their purchases of decorative home and garden items, with patio furniture a standout weakness. Target noted it had planned very conservatively for that category this year.

Conclusions: Consumers are staying close to home and they want it to look nice. But they're not committing to big purchases like patio furniture to spruce up their home.

They're tackling more projects themselves, especially smaller ones, and opting to fix a faucet themselves rather than call a plumber. They're also planting gardens, perhaps with an eye toward trimming their food budgets. And forget new appliances -- they're making do with what they have.

CLOTHES AND OTHER BASICS

What We're Buying: Target says the items people feel they need the most, like products related to health care, food and beauty, are doing the best. The beauty category benefited from people making those purchases at Target rather than in more expensive department stores.

More people were shopping at stores run by TJX Cos., like T.J. Maxx, Marshalls and HomeGoods. Sales of basics like sheets and towels and clothing were all strong.

Fashionable denim is doing well at Saks Inc. stores, the high-level retailer said, noting that the trendiest brands do the best.

What We're Not: Clothes and home goods were weak in Target's second quarter, and Kathy Tesija, executive vice president of merchandising, summed up the consumer mindset in one word: "cautious." The number of people coming into the stores has slowed, and people who made purchases spent less money. Frequent shoppers aren't coming in as often and they're cutting their weekend trips even more than their weekday trips.

TJX is seeing more people come into its stores but they're not spending as much, on average.

Limited Brands Inc., which operates Victoria's Secret and Bath and Body Works, said sales of fine fragrances and bras and panties were weak in the quarter. It noted its spring color palette was "muted and serious" and trends improved when it introduced bright colors in July.

Overall sales at Saks continued to slump as fewer people came into the stores. The company's less expensive Off 5th stores continued to outperform Saks' full-price locations.

Conclusions: Shoppers are still tightfisted and cautious. They're looking for bargains -- which is why traffic is up at stores like T.J. Maxx. But they're not yet ready to resume shopping at pre-recession levels -- which is why spending is still down. They're still shopping with an eye toward fashion, though, and want to keep up with trends.

FOOD

What We're Buying: Spam, Spam, Spam. Hormel said sales of its meat-in-a-can continued to rise in the quarter, gaining in the low double digits, while sales of other canned items and Hormel chili kept improving. Hormel's party trays, which sell for about $10, continued to be strong, as they have been throughout the recession.

BJ's Wholesale Club, which has been seeing more customers coming in, said sales of cereal, meat and household items made gains in its second quarter.

Heinz reported infant food and ketchup sales were strong.

What We're Not: Hormel said customers bought fewer of its more expensive items, like microwavable meals, while its food service division, which serves businesses like restaurants and hotels, continued to slump.

Sales of Weight Watchers Smart Ones entrees fell in the quarter, too, Heinz reported. It noted the frozen food category is tied to consumer confidence and has been down for a year.

Heinz and Hormel said they were still competing with store brands and other generic products, which cost less than branded ones. Heinz said the trend was lessening, though, and there are signs that consumers still want brands.

Conclusions: Food prices may be dropping as lower ingredient costs fall for manufacturers, but they're still not low enough for consumers, who are shopping with savings in mind. They keep dropping down to store brands and they're still willing to sacrifice convenient items like frozen foods to pad their food budgets.

But that doesn't mean they're being entirely thrifty. Consumers will pay for things they perceive have value, and that includes name brands.

As Hormel CEO Jeffrey Ettinger told analysts last Thursday, "Value is in the eye of the beholder."

(Source: Associated Press, 08/21/09)

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