Economic downturn may have lasting effect on consumer behavior

The economic struggles of the last year that have taken a heavy toll on retail may have a lasting effect on how consumers shop and buy – one every retailer and supplier will have to deal with.

According to a new report from Information Resources Inc., research suggests that most shoppers will continue with their current mindset for a long time – even after the economy recovers. The IRI research compares the thinking to that of the children of the Depression and says it is a basic “rewiring of behavior (that) that will have long-term effects on shoppers’ bargain-hunting habits, where they get their information and the number and types of stores they will frequent.”

At the same time, Nielsen reported at its recent Consumer 360 Conference that the Dollar Store and similar stores are thriving, attracting new customers and are not just for low-income shoppers anymore.

“As consumers respond to the economic downturn by simplifying their lives, the dollar channel is providing convenience, value, and a new level of shopping consistency,” said Jeff Gregori, vice president of retail services for Nielsen in his presentation, "Rise of the Dollar Channel."

Nielsen research has shown consumers of all income levels are coming to the channel but that the most growth is among higher-income shoppers – up 10 percent compared to a year ago – and that the growth accelerated in the last half of 2008.

No matter whether you side with the forecasts that the economy will recover later this year or not until late in 2010, experts are taking a look at its effect on shoppers not only today, but in a decade or two. Experts are saying they think the American consumer has begun to rethink the so-called American Dream of buying a house that rises in value, an easy availability of credit, and a better future. Meanwhile they are willing to pay money for some items, such as “affordable indulgences,” but are looking to find more and more bargains too.

In addition, they are looking at such practices as pooling resources with friends and family, for example by sharing yard equipment.

In the study, 71 percent (up from 64 percent) said they would look at store flyers before going to a store or while at the store, and 82 percent (up from 63 percent) said they would bring coupons, while 44 percent (down from 48 percent) said they would make additional unplanned purchases in-store.

“The Downturn Generation will take significant convincing before they believe it is safe to open their wallets and purses again,” said research author IRI president of consulting and innovation, Thom Blischok. “This group has less long-term optimism and a much more cautious outlook for the future than their predecessors.”

The research, titled, “Dissecting the Downturn Generation: Recognizing and Leveraging Permanence In Today's Transformational Economy,”, also shared nine tips for consumer goods manufacturers and retailers:

Shift merchandising out of the store and into the home – Shoppers are doing more research about products at home where they also are downloading coupons.
Increase Emphasis on Online and Social Media Presence – Many are embracing less traditional media in favor of websites, blogs and social media sites, and research often becomes a viral, collaborative effort.
Recognize and Assist with Changing Rituals – Where applicable, manufacturers should try to make it easier for consumers to “stock up” on some items by offering larger quantities, and retailers can put them in special areas.
Focus on Familiar Products – Line extensions rather than new products may be more successful for the short-term.
Understand that "Good Enough" is Good Enough – Re-engineering an existing product to make it cost less compared to introducing or selling a higher-priced item may be more worthwhile.
Realize That Shoppers Will Travel for a Deal – A good deal will prompt consumers to drive farther while brand and retailer loyalty may erode.
Collaborate to Find Common Ground – Retailer margins may continue to erode so trading partner will need new strategies to collaborate effectively and successfully.
Adapt to the Rapid Pace of Change – If the recession continues, businesses should be prepared and ready for shoppers to cut more items out of their closets, houses, medicine cabinets and diets.
Prepare for the New Conservative Consumer – Optimism is not long-term and most of this generation will remain cautious about the future.

“Change creates opportunity,” Blischok wrote, “and today’s economic environment reflects more change than any time since the 1930s. While the opportunities are somewhat different,… ample opportunities exist to collaborate and improve product offerings, assortments and layouts, as well as pricing and promotions.”

The entire white paper can be downloaded from Retailwire by clicking here (registration is required)