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Unravelling the mind of the consumer?

I read a very funny link that someone sent me this morning that highlighted recent changes in consumer spending patterns. The link is at the end of this blog (for lunchtime reading only, of-course!)

Behind the humour, there's a serious point. Big ticket consumer items like TVs, cameras and camcorders, are likely to be low on the agenda of anyone already struggling to pay mounting heating bills or their mortgage. But are they dead in the water, or merely experiencing a lull in popularity before their fortunes revive?

In the UK, data from the Office of National Statistics showed a 0.4 per cent drop in retail sales between August and September. However, this data may not adequately reflect the impact of discounting that traditionally happens during the quieter summer months. A more salient measure is to take a retailer with a strong reputation in electrical goods, such as John Lewis, whose latest figures showed a 7.6 per cent year-on-year decline.

An arguably better indicator of the impact that the financial crisis is having on consumer spending comes from the Confederation of British Industry (CBI), whose latest Distributive Trades Survey was published today. It showed a drop in sales for the seventh consecutive month, with half of the retailers surveyed reporting a decline in sales volumes in the first half of October compared to last year, though 23 per cent said they were up. Notably, it is food, footwear and DIY stores that are experiencing the increases though.

Some 35 per cent of firms said that volume of sales for the time of year was poor, and that November's outlook remains weak (-31 per cent). Amongst the hardest hit are motor traders, with 87 per cent of those interviewed reporting a fall in sales volumes, marking the fourth month of heavy declines. But it is not just car sales that are suffering. A more interesting indicator of the health of the overall economy comes from truck sales, used to transport all these consumer goods around. No company's could look much worse than Volvo Trucks right now who, compared to the third quarter 2007, reported a staggering 99.7 per cent fall in sales this quarter. The company sold just 115 new trucks in the last three months, compared to almost 42,000 last year!

So, back to my point that as consumer spending is reigned in, cheaper goods will undoubtedly drive sales (forgive the pun). But I think there could be some surprises in store for those trying to read consumer retail behaviour. For example, it will be interesting to see whether in the months leading up to February 2009, there is a surge in demand for digital converter boxes, as people opt for a cheaper substitute to a new TV. Alternatively, flat panel TV sales might just jump as consumers decide to go out less and take solace in their favourite soaps. After all, fast food outlets are already seeing an uptake in business thanks to people visiting restaurants less. Equally, games consoles such as the Wii fit may see strong demand as people cut the gym membership and opt to exercise at home instead.

Perhaps the 0.4 per cent retail sales fall from the Office of National Statistics isn't so far off the mark at all. It remains to be seen whether this recession will blow previous financial bubble models out the window. Instead of the Dutch Tulip mania of the 18th century, just maybe we'll create our own version of the Chrysanthemum Bubble, albeit with a camera on!

See the link here

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