Transformation in Retail Market Gains Momentum

The May consumer spending uptick proved extremely short-lived. So much for that.

Despite the major infusion of $150 billion in economic stimulus rebates, consumers are once again pulling back. ChangeWave's latest consumer survey results point to yet another downtick in U.S. consumer spending going forward.

The survey of 4,525 consumers, completed July 2nd, focused on spending patterns for the next 90 days. And as the following chart shows, the new pullback in consumer spending reverses the slight improvement found in our previous survey.

Better than two-in-five U.S. respondents (43%) now say they'll spend less over the next 90 days - 3-pts worse than in May 2008. Another 26% say they'll spend more - 2-pts worse than previously.

So why are consumers spending less?

Inflation and its close first cousin, higher energy costs, continue to weigh heavily on consumers, as the next chart dramatically points out.

Better than half of respondents who say they'll be spending less over the next 90 days (56%) cite higher energy costs as a primary reason - a 7-pt jump since the May 2008 survey. Similarly, 56% also point to general inflation - up 4-pts from previously.

Concurrently, positive behaviors like reducing debt (24%; down 2-pts), saving more money (18%; down 4-pts) and investing more money (8%; down 5-pts) are increasingly getting squeezed among those who report they are spending less.

We'll take a closer look at how consumers are changing their behavior to cope with rising prices in an upcoming Special ChangeWave Report.

Consumer Attitudes on the U.S. Economy

In a particularly grim finding, nearly one-in-two respondents (49%) say the current state of the economy is worse than they thought it would be 90 days ago - an unprecedented 28-pt increase since our May survey.

Additionally, better than one-in-two (55%) now think the economy will worsen in the next 90 days - a whopping 16-pt increase from a month ago. At the same time, only 11% think the economy is going to improve, 6-pts worse than previously.

Consumer Retail Trends: Discount and Wholesale Clubs Thrive

Back in February we reported on the transformation in retail shopping (see ChangeWave's Feb Consumer Survey Findings) - led by sharply lower spending and higher inflation. The transformation has continued, resulting in a huge shift by consumers to the discount retailers and wholesale clubs. Moreover, the shift now appears to be solidifying into a permanent, long-term, secular trend.

For the fourth consecutive ChangeWave survey, Costco (COST; Net Score = +11) and Wal-Mart (WMT; +5) are the two big retail store winners going forward. We note that Sam's Club (+4) - a Wal-Mart subsidiary - also shows positive momentum.

On the downside, the traditional retailers that have consistently shown weakness in our previous ChangeWave surveys during 2008 - including Sears (SHLD; -12), Bed Bath & Beyond (BBBY; -11), Macy's (M; -9), Linens N Things (-8) and JC Penney (JCP; -8) - continue to show deterioration going forward.

Where Else is Consumer Spending Slowing?

The slowdown in spending is by no means reserved for traditional retailers.

Spending on Travel/Vacation is registering the biggest slowdown of any spending category - at a time when we'd normally expect strength during the summer season. Only 28% say they'll spend more on Travel/Vacation over the next 90 days compared to 34% less - a net 8-pt decline from the previous survey in May.

Restaurant Spending (-3) also takes yet another hit going forward. We'll take a closer look at restaurants - including key winners and losers - in a follow-up ChangeWave report.

There's also little to cheer about in terms of Consumer Electronics shopping. Only 14% of consumers say they'll spend more on consumer electronics over the next 90 days compared to 34% less - a net 2-pt decline since May.

On the home entertainment front, Best Buy (39%; down 6-pts) and Circuit City (10%; down 4-pts) are being hardest hit by sluggish electronics spending going forward.

But on a brighter note, our two overall retail winners - Costco (24%; up 1-pt) and Wal-Mart (15%; up 3-pts) are showing momentum in terms of home entertainment shopping. Amazon (18%; up 2-pts) also shows an uptick going forward.
What this all points to, is a transformed world in which American consumers have tightened the leash on their wallets. Good news for the discounters and wholesale clubs, but bad news for the traditional retailers to say the least.

Here at ChangeWave, we leverage our expertise in industry and company level research to identify emerging trends, technologies and companies best-positioned to capitalize in today's market.

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Jim Woods co-wrote this article.


Related ChangeWave Consumer Spending Articles
-- Inflation's a Huge Drag as Energy Costs Transform Consumer Behavior (8/19/08)
-- Consumers Spending More Time in The Kitchen (8/12/08)
-- No Mas! Costco and Wal-Mart Lead a Consumer Revolution (5/27/08)
-- World Takeover By Wal-Mart and Costco (5/20/08)
-- U.S. Inflation Worries Spiral as Spending Falls... (4/14/08)
-- No Signs Yet of a Bottom (3/5/08)