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US consumers focus on needs, not wants

Chemical companies, Consumer demand, Economic growth, Oil markets
By Paul Hodges on 13-Jul-2011

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.