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American shoppers focus on needs, not wants

Consumer demand
By Paul Hodges on 27-Nov-2014

US shopping Nov14Tomorrow is the great American shopping day, Black Friday.  In the past, every true American would head for the malls, to shop till they dropped.  But more and more evidence keeps emerging that consumer habits are rapidly entering the New Normal, as I discussed last week.

Thus a detailed study by the Wall Street Journal highlights, as the chart shows, how consumers are shopping less, and also buying less when they do shop.   It concludes that:

A new intentionality has taken over shopping….Americans are visiting stores only when they run out of items like cereal or toilet paper and after doing extensive research on purchases online and with friends. They buy what they came for—and then leave.”

This is further evidence for our argument in Boom, Gloom and the New Normal that consumers are focusing on “needs” rather than “wants”.  Thus 5 years after the Crisis began, US consumer confidence is still only around 90% of the 1985 level. As the Journal adds, this “highlights the new normal of the U.S. economy”.

It is also clear that major companies, not just mon-and-pop stores, are now suffering real pain as a result, with the Journal highlighting how Wal-Mart’s previously successful business model is now misfiring:

Wal-Mart moved aggressively into the low-margin grocery business in the 1980s hoping it would prove a weekly draw for shoppers who in theory would also pick up more profitable items like clothing and toys. But the formula has come under strain.

“Groceries now account for 56% of Wal-Mart’s $279 billion in U.S. sales, and categories like electronics and toys are waning or migrating online. Only once since 2012 has the company reported increased U.S. sales, excluding newly opened or closed stores. Meanwhile, traditional grocers like Kroger are eroding Wal-Mart’s price advantage.”

It is tempting, of course, to imagine that these changes only apply to retailers.  And even more tempting to assume that top management has simply been asleep at the wheel.  Tempting, but foolhardy.

In reality, the core issue is that previously successful companies find it very hard to change their business models, even when it is clear these no longer work.  As I discussed on Tuesday, US chemical companies risk the same outcome, if they persist with building new plants for which there is no demand.

But change is inevitable in life, and creates opportunities for those more flexible in their approach.  This is why the Chinese word for Crisis includes the character meaning Opportunity, as well as Danger.