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US consumers enter the New Normal

Consumer demand
By Paul Hodges on 10-Jul-2012

Consumer mkts Sept11.pngThe chart above opens chapter 7 of ‘Boom, Gloom and the New Normal’, which looks at the changes taking place in consumer markets.

June’s US retail sales provide clear evidence of the trends it describes:

• They grew at the slowest pace in 2 years, despite falling gasoline prices
• Mid-market stores suffered the biggest hit to volume
• Instead, consumers focused on the discount stores

Of course, as novelist F Scott Fitzgerald once wrote, ‘the very rich are different from you and I’. They still have money to spend, and high-end stores posted 6 – 8% sales gains.

This pattern is very different from the economic supercycle years between 1982-2007. Then, the spending power of the BabyBoomers created a new ‘middle market’. Companies no longer needed to focus on being either low cost, or on delivering high perceived value.

Instead, they developed a ‘mass customisation’ model that opened up a new middle market. Costs were kept low by outsourcing, whilst prices increased as lifestyle brands became the norm.

But those days of easy, and constantly increasing, profits have now disappeared. And we are not simply moving back to the pre-1982 world. The Western population is older, and it has less money to spend.

Companies that proactively adjust to this New Normal will see rising sales and profits in the years ahead. But sadly, far too many Boards remain in reactive mode, hoping against hope that ‘recovery is just around the corner’.