18.2 Months to Change Consumer Habits?

They say it takes 3 to 4 weeks to form a new habit.  How about 18.2 months?  That's how long the current economic downturn has lasted.   What will this do to consumer consumption and spending habits?

The NPD Group and the National Retail Federation (NRF) have released their consumer perception and retail reports for the first quarter of 2009.  The gist?

NPD:

  • "Consumer confidence continues to decline, albeit slightly, while intent
    to spend at retail remains steady, indicating that consumers may have
    reached their cost cutting limits.  With concern down only slightly, consumers did not dial back spending intentions.  The Economy Tracker’s
    Retail Response Indicator rose 0.5 points in March. “This slight rise
    could be an indication that we are seeing the beginning of
    stabilization,” said Cohen." (Marshall Cohen, Chief Industry Analyst of NPD Group)

NRF:

  • Several months of stronger-than-expected retail sales provided hope
    that the industry was poised to bounce back, but March retail sales
    demonstrate that the industry is continuing to struggle.  According to the National Retail Federation, retail industry sales for
    March (which exclude automobiles, gas stations, and restaurants)
    decreased 0.6 percent seasonally adjusted from February and dropped 3.7
    percent unadjusted over last year.

The NRF also issued a press release stating that "retail import volume hits the lowest level in seven years as number of cargo containers drops below 1 million mark". 

Two major questions: 1) When will we hit bottom and begin our way back
up? 2) Will consumer habits be markedly different because of this most
recent recession experience?

Stimulus package, tax refunds, latest shopping indicators.  Experts are looking for signs of the upturn.  We're all looking for signs.  But, do we really know?  What we can plan for, is the longer and more painful the recession is–the greater likelihood we'll see differences in the consumer that emerges.  My assumption is that a more painful experience for consumers creates greater motivation to not create the same
circumstances that lead to the pain again.  That's not a great leap in logic.  The generation that experienced the Great Depression, during which breadlines, shantytowns, and 1 out of 4 people were jobless, seemed to emerge with a measured approach to personal finance and consumption (in comparison to droves of people taking no down payment, interest-only, adjustable rate mortgages–like today).  Of course, the Great Depression generation didn't have easy access to credit cards and 55" HD flat screens calling their name. I'm just saying grandpa…

But what if some of the experts were correct, and the economy is very close to bottom and will begin inching upwards again soon?  The National Bureau of Economic Research estimates that we won't see a conclusion to this recession until the end of 2009 at the earliest.  In comparing this recession to the 3 other "Bad Bears", or the last 3 major economic declines since the Great Depression, we've declined further than the tech crash of 2000 and the oil shock of 1973, but have bounced back to similar S&P 500 levels as those events in the last few months  (Hat tip to Paul Kedrosky's Infectious Greed and Dshort for the graph).  With respect to time, the current bear market has existed for 18.2 months so far, while the oil crisis lasted for 20.7 months and the tech crash lasted for 30.5 months.  The Great Depression? Forget about it…34.2 months.

Four-bears

If this was the beginning of the end of rough times, would consumers look back and think that for all the doom and gloom in the media, "that wasn't so bad?"  Mostly gloom–not as much doom.  And if so, would we change our consumption habits for the long term?  We have grown accustomed to a standard of life, or lifestyle, and to retain that lifestyle, consumers may emerge with a more discerning eye for the things that we feel are essential to our quality of life and those that are not.  A recessionary education on the risks of easy credit and the prodigality of thoughtless consumption, and I believe we'll see some changes in consumer habits.  We may not be able to have it all and we will be willing to cut consumption in some areas to enjoy a high level of it in others. 

What does this mean for product marketing?  Product sourcing and supply chains?  The job of the product marketer will be tougher…requiring a greater understanding of what particular products and features specific segments will want and those they'll be willing to trade out.  Supply chains will need to be more responsive, to reduce the costs of unsold inventory created by the fact that, even great product marketers may guess wrong with respect to what their choosey segments will want.  Even if the economy begins recovery soon, consumers may be different–perhaps smarter and more sophisticated.   Business as usual probably won't return: act accordingly.