Increased Shopper Optimism Imminent, But Not All Elements Aligned : Since Q2, portions of shopper confidence have been building, with economic and personal finance expectations on the rise. Additionally, among job seekers, optimism is growing, moving in concert with favorable employment reports. Back-To-School shopping was a bright spot, with consumers bucking recent years’ trends and spending more this year.
Despite this, the economy remains the key concern. Gas prices came down but were still higher than what consumers expected; they are reluctant to trust that sustained lower prices are forthcoming. Although we haven’t seen pricing effect from the Midwestern drought as of yet, media attention caused increased apprehension about food prices among shoppers.
Sluggishness in disposable income remains a key barrier to confidence growth, and there are indications that some consumers are patching income gaps with credit card purchases. Because of this, consumers’ mindset for Holiday spending is both hopeful and guarded.
Modest Momentum in the Midst of Tough Times: Walmart Moms’ confidence has not found much traction over the past six months, but is mostly higher than the same periods in 2011.
However, despite small positive signs, sustained confidence gains face big barriers.
Lack of disposable income growth caps optimism:
Our internal spending analyses confirm that households’ discretionary spending has yet to return to pre-downturn levels. A prolonged improvement in confidence is unlikely until income for disposable purchases improves considerably. We found that attitudes toward discretionary income are strong indicators of Walmart Moms’ confidence.
Evidence of “cash flow” issues:
Recently, for Walmart Moms, higher credit card balances have generally tracked with lower confidence, suggesting that a significant amount of these purchases are made out of necessity and not increased financial freedom. Regardless of income level, most periods with higher credit card balances coincide with lower confidence scores. Upper Income Walmart Moms’ balances increased in September and October, while leveling off over the same time period for Lower Income Moms.
Lowest confidence found in South and Mountain West:
Among all adults, average past six month confidence has been lower than the national average in the South and Mountain West regions and stronger in New England, the Pacific Coast and the Great Plains.
Perhaps, There Was Pre-Election Momentum:
According to an analysis by seekingalpha.com, employment, GDP, and consumer spending growth have all increased in recent election years, with the notable exception of 2008. Confidence increases are especially prevalent in the October-November period of an election year. Post-election metrics therefore, will be important to monitor for proof of prolonged confidence growth.
“The Fiscal What?”:
After the election, awareness rose significantly and now only 31% aren’t familiar with the term. Even so, the number who says they really understand the underlying fiscal cliff issues only rose to 17%. On average, about a third of the population approves of how elected officials are approaching the issues (similar for both Democrat and Republican officials); whereas 42% say they’re favorable to how President Obama is handling the fiscal cliff, which is up from 38% pre-election.
Consumers who are aware appear passionate about its potential effect on the nation and their household.
Unconventional confidence markers:
Diaper Rash Indicator: In an attempt to save money in down economic times, parents with children in diapers try to save on costs by cutting back on diaper changings. At the same time, sales of baby cream, related to Junior’s increase in diaper rashes, builds. Parents, in effect, are trading more expensive diapers for less expensive baby cream. Our own store data would suggest that there may be something to this quirky gauge.
Other non-traditional economic indicators of note:
- Men’s Underwear Index: Here’s the theory: In stable economies, sales of men’s underwear is flat to strong. But when finances are crunched, men tend to expand their underwear purchase cycle and go longer with existing skivvies. However, our data suggests relatively solid men’s underwear sales over the past several years, defying this convention.
- Trash Index: Explores the relationship between GDP and the number of train cars full of trash shipped to landfill. Good economy = more loads of garbage. There appears to be a reasonable parallel between Walmart trash bag sales and confidence, however, increased consumer recycling and sustainability practices may be obscuring the trend.
Small Businesses Believe in American Dream, but Concerned About Short Term: Overall confidence among Sam’s Club study of small business owners leveled off in the first half of 2012. They show more confidence in their own business than about the marketplace:
- They remain cautiously optimistic about the future, with nearly 6 in 10 are positive about the long term success of their business,
- Small Business Owner’s confidence in achieving their business plan is down significantly from March, 2011 (57%) to July, 2012 (52%).
- Many are not bullish on an economic recovery by summer 2013, with only 12% saying they’re confident/extremely confident of a recovery, although Sam’s Club business owners remain more confident.
The cost of healthcare moved to the top concern among all small business owners, followed by energy costs. They are cautious about spending on new equipment/technology as they remain cautious about the fiscal cliff and rising costs.
At the same time, they worry about cutbacks in customer spending and the lack of opportunity to generate sources of new business. We typically see a lag effect of changes in short term interest rates in our business: as interest rates go up, their ability to purchase supplies becomes pressured.
Shoppers Opened Their Wallets for Back-To School in 2012: After several years of flat retail sales for the Back-To-School period, “restoration” appeared to be a key BTS theme in 2012. Still weary of the economic climate, shoppers honed their money-saving strategies.
Their savings strategies paid off at Walmart:
Walmart customers took advantage of everyday value and rollback prices on BTS items during the period, resulting in stronger Walmart Back-To-School spending than in 2011. The increase was driven mainly by increased traffic, number of items purchased, and apparel purchasing. Additionally, Walmart shoppers responded directly to apparel rollbacks, as one of three BTS baskets included at least one apparel item.
Plenty of common spending ground across incomes:
Upper and lower income Walmart BTS shoppers’ baskets were very comparable. Transaction size differed by only $5 and the top 3 basket categories were similar, with the low income group’s purchasing of apparel helped to drive higher overall BTS spending.
Grandparents lend a hand with BTS purchases:
Up to four in ten of those with children in school indicate grandparents played a supporting role in purchasing Back-To-School items. Apparel and accessories were among the most popular categories where grandparents pitched in.
- “My husband’s mother purchased most of the kids’ back-to-school clothes. It makes a huge difference with the kids. They wouldn’t get new items if it weren’t for [the grandparents].”
- “My children’s grandparents help me every school year with buying some of their school supplies. If they are out and see something on sale they get it, just in case.”
Education Cuts Puts Pressure on Teachers:
Due to the recession, many states have come under budget pressures with a key result being cuts in education expenditures. School supplies are often the first items to be cut. Meanwhile, according the Backpack Index report by Huntington Bank, school supply costs have increased by as much as 6%.
Georgia school budgets were hit particularly hard between 2008 and 2010, according to figures from Public Education Finances Reports:
This dynamic is also reflected in a recent Georgia PTA poll and subsequent discussions with administrators and staff, “We have not done a new textbook adoption in three years. We have reduced funding to schools for supplies, materials, and equipment.”
Teachers rely on donations:
Caught up in the trends, teachers have turned to Classrooms by Walmart (a walmart.com initiative) for help. Walmart has found an association between teacher participation in the program, and states with higher budget cuts and/or lower expenditures per student. Put simply, the more a state has cut from education, the more teachers turn to Walmart to help with school supplies.
An example of a Wish List from one Georgia teacher:
Consumers’ Sensitivity to Rising Food Prices Reflected in Their Purchase Behavior: During higher food price periods, we have seen that Walmart customers spend more on food and less on discretionary items such as electronics and apparel. There is evidence of cutbacks on more essential items, such as paper products, health and beauty products, and they even appear to sacrifice some prescription medication purchases or trading down to generic branded drugs to counter higher food costs. Overall volume of prescriptions filled at Walmart remains healthy.
Ad Match makes a difference:
Shoppers are seeking refuge from high food prices by utilizing Walmart’s Ad Match program. This has resulted in savings of $219 million in food costs for Walmart customers in 2012 year-to-date.
Expect food price sensitivity to continue into 2013:
In the first half of 2012, concern over food prices tracked with inflation. Walmart Moms’ concern over rising food prices increased (and diverged from inflation trend) as media coverage of the Midwestern drought intensified.
We expect the full effect of the 2012 drought and its impact on consumer packaged and processed foods will not be felt until 2013. Consequently, the USDA has forecast 2013 food inflation to be 3%-4%, which is significantly higher than the historical average. More food pricing pain is on the horizon.
A Growing Group Reaches For Healthy Alternatives: Walmart’s combined natural and organic food sales are growing almost twice as much as traditional food products, with key growth categories extending beyond “typical” healthy eating categories, such as yogurt and milk, and into snack products.
Great For You Program Launches:
Walmart encourages healthier choices with its Great for You initiative, developed to help our customers instantly identify food options that are better for them. It will debut on Great Value and Marketside items and already appears on fresh and packaged fruits and vegetables at Walmart stores nationwide.
Moms Not Holding Their Breath for Relief at The Pump: Walmart Moms’ reported spending on gasoline has not varied much since the spring, and expectations for future gas expenses reflect little change from their current outlays. In other words, they have little expectation of gas price relief.
When gas prices rise, shoppers make every trip count:
Customers tell us they consolidate their trips to offset rising gas prices. Our data confirms that shoppers spend more per trip on the things they need the most including groceries, health and beauty, and school/office supplies on each trip during high gas price periods.
Customers take advantage of gas rollback savings:
Customers are finding relief at the pump by taking advantage of the Gas Rollback program. Through December 24 th, 2012, Walmart shoppers can save up to 15 cents per gallon at participating Murphy USA and Walmart Gas stations. Walmart has received a great deal of positive feedback since reintroducing the program:
Overall Job Market Improving, But Debt and Uncertainty Ahead for Young Adults: The national unemployment rate was down to 7.8% in September. In our survey of the general adult population, optimism among job-seekers has steadily improved from the second quarter. Despite Walmart shoppers being more likely than non-shoppers to have lost a job within the past two years, those seeking employment or to upgrade from part time are more optimistic about their prospects.
Attempting to tip their odds in their favor, the unemployed continue to employ multiple job-search tactics:
Young adults face many challenges in the early years of their careers:
According to an Economic Policy Institute report, unemployment rates for those less than 25 years are almost twice as high as the general population. Additionally, new college graduation unemployment is a full point higher than the national average, and real wages for college grads are 5% lower (inflation adjusted) than in 2000. Adding to this, the average college student is saddled with over $25,000 in debt upon graduation which may take years to repay (from The Institute for College Access and Success).
We also have found that younger adults are also more likely than older adults to report difficulty in sticking to formal household budgets.
Walmart Offers Alternative Solution to Budgeting:
In October, Walmart and American Express announced the launch of Bluebird, an alternative to debit and checking accounts designed to help consumers better manage and control their everyday finances. Bluebird has been developed for the tens of millions of Americans who are looking for advanced capabilities such as deposits by smartphone and mobile bill pay, fee transparency, and no minimum balance, monthly, annual or overdraft fees.
Shoppers Find Creative Solutions for Gift-Giving: Early indications are that shoppers will again adopt caution about their approach to holiday spending in 2012, amid sustained unemployment and high gas prices relative to last year. Increasingly, consumers are consider layaway an answer to tight budgets to divide payments on higher cost items and combat credit hurdles.
The traditionally popular electronics and games categories are hot again this year as evidenced by some of the top to-date items (by quantity) in Walmart’s Layaway program:Apple iPad2
- Apple iPod Touch
- Wii Game Console
- Emerson 32” TV
- Nabi-2 Kids Tablet
It’s better to re-gift than receive:
While some see re-gifting as a way to save money or cut down on waste, others feel it is tacky or offensive. Many admit feeling uncomfortable with re-gifting, especially when not disclosing to the recipient, yet eight of ten who re-gift do not! However, re-gifting may be gaining a bit more acceptance as those who are worse off economically than last year are more likely to reveal a re-gift to the “inheritor.” Add to this that three quarters of consumers indicate that being a recipient of a re-gifted item makes them feel no different having received a “new” item, and some of the old re-gifting taboos may be fading.
Has Your Family Ever Experienced a Thanksgiving Mishap? One in five of those who host at Thanksgiving expect some sort of mishap to occur and one of three suggests that their family has “great stories” about these blunders!
- Running to the store for forgotten items and delaying dinner because it wasn’t ready are the most frequently occuring mishaps.
- The turkey is acknowledged as the most difficult menu item to prepare, followed by pies/dessert.