The current state of the economy brings both good news and bad news for retailers. Consumers are becoming more optimistic about their finances. But they are likely to drop buying habits they picked up during the recession.
The Reuters/University of Michigan consumer sentiment index rose to 70.2 in September, compared to 65.7 last month, which is its first gain in the last three months. Economists only expected the index to reach 68. The news is good for American retailers, but there's no evidence that consumer purchase intentions will change with their confidence levels.
Conrad DeQuadros, an RDQ Economics economist, tells The Wall Street Journal:
"[There's] just this general feeling that the worst is behind us in the economy. That's probably offsetting some of the factors that dampen consumer sentiment."
"The sentiment index is particularly encouraging this month because its improvements were not solely confined to what the future holds. In late August, the Conference Board Consumer Confidence Index also showed improvements, rising to 54.1 from 47.4 in July, but it was on improved expectations not improvements in the current economy."
According to Andrew busch, global strategist for BMO Capital Markets:
"Consumer confidence is tied closely to retail sales and consumer spending and one would hope that with an increase in consumer confidence, we would see an increase in retail sales."
But old habits die hard, and the saving and cost cutting measures that people acquired over the psat year may stick around for awhile.
Wal-Mart CEO Mike Duke told attendees at the Goldman Sachs Global Retail Conference this week in New York:
"This new focus on frugality, and especially on the deferral of purchases for things that aren't needed right now, are the new normal."
Even if economic conditions improve, marketers are going to have to get used to consumers who more concerned about where they're putting their dollars. Duke continued:
"People are putting a tremendous emphasis on shopping smarter -- I'm amazed at how many more people know the price of what they buy, right down to the penny. I don't believe this will change as the economy gets better. The deferral of purchases will be with us for a long, long time."
That doesn't mean that rock bottom prices are the only way to get customers. Consumers with tight budgets are concerned with value. And reminding them of the utility and quality of your brand is increasingly important.
As I wrote this summer, marketing is especially important in a recession. Accurate targeting of brand messages is always important. But when consumers are worried about spending, brands that reach out with useful messages are more likely to get their business.