US consumers focus on needs, not wants

Sales.pngLuxury stores are doing well around the world. The great central bank lending sprees have ensured up-market consumers still have money to spend.

But many other parts of the market are struggling, as consumers worry about unemployment. Higher food and energy prices are also reducing their discretionary spend – which, of course, has a direct impact on end-user demand for chemicals.

The USA highlights how the retail market is now polarising, away from the mid-market and into luxury or budget offerings:

• Top-end Saks saw same-store sales up 12% in June. And their CEO noted that their “focus is on full-price selling” with few discounts.
• But mid-range stores found themselves over-stocked, after a poor spring selling season. Thus they had to resort to “deep-discounting” according to the Wall Street Journal.
• This meant June’s retail volumes appeared strong, up 6.5%. But orders for H2 are weaker, as retailers need to protect margins.
• Even so-called ‘dollar stores’, where key items cost just $1, are finding consumers are cutting back to essentials

Consumers have traded down to these deep-discount stores since the Great Recession began. Wal-Mart, the US’s largest retailer, has suffered as a result since then. Now even these stores are finding that consumers are focused on real needs, not wants. As the WSJ reports:

“They are buying more food and other basics like cleaning products, which have relatively low profit margins, and fewer higher-margin discretionary products, such as apparel and home decorative items”.

Consumer spending is the key driver of chemical demand. So these major changes are another clear sign that we are entering a New Normal. The next 20 years are going to be quite different from the BabyBoomer-driven SuperCycle seen since 1980.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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One Response to US consumers focus on needs, not wants

  1. 31 March, 2012 at 9:04 am #

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