Consumer conservatism is the ‘new black’

New consumer research released by the Australian Retailers Association reveals that 50% of consumers are planning to spend less this year and 45% plan to save more.

The research, compiled by Research Now and Shopworks Science on behalf of the ARA, is based on a survey of 800 Australian consumers, and shows a clear trend towards saving and paying off debt.

Consumers were asked two questions. The first related to personal or family financial plans for 2011, with 51% of respondents saying they plan to spend less on discretionary items.

According to the survey 46% believe increased living costs will tighten their budgets and 46% plan to save more.

With regard to how consumers plan to cut costs 29% say they intend to spend less on groceries and alcohol while 22% say the forecast for additional taxes will force them to reduce spending.

Only 16% of respondents have no plan to change their financial habits and 9% are planning to spend more on discretionary items.

The second question asked respondents to assess the impact that the Federal Government’s flood levy will have on personal or family financial behaviour.

While 47% say the levy will not impact on normal spending habits 30% say they will spend less as a result of the levy.

ARA executive director Russell Zimmerman says based on the survey results it appears sobriety is “the new black” amid the trend of value-seeking consumers.

“2011 will have its own set of challenges as electricity prices soar and flood-affected crops bump up the prices of fruit and vegetables,” Zimmerman says.

“Over 45% of consumers said the increased cost of living in 2011 would tighten their budgets and new taxes have also spooked consumers.

“Paying off debt will also continue to be a focus for prudent shoppers, with a third of consumers planning on paying more than required off their credit card debt and almost 20% will pay more than their minimum mortgage repayments.”

Zimmerman says retailers’ struggles are evident in the recent profit downgrades posted by Myer, Woolworths and The Reject Shop.

He also cites the collapse of REDgroup Retail, which owns bookstore chains Borders and Angus & Robertson, as an example of extremely tough trading conditions.

Menswear retailer Ed Hardy has entered into voluntary administration with at least $12 million owed to creditors.

“Our advice to retailers is to try not to rely on heavy discounting alone to get consumers spending – shoppers need to see real value in whatever they are buying,” Zimmerman says.

“Find out what your customers really want, communicate with them, get online, embrace multi-channel strategies.”

David Jones chief executive Paul Zahra offered insight into retailers’ anxieties after revealing the department store’s half-year sales were down 0.2% to $1.98 billion, with the second quarter sales performance falling 2.7%.

Although that was better than rival Myer, which saw interim sales decline 3.5% to $1.73 billion, Zahra confirmed that “times are a bit tough”.

Zahra said the better performing departments were women’s accessories, men’s fashion and home furnishings, but any optimism about the year ahead lay in the hands of consumers.

“We have launched into our winter season in February and the patchiness in our trading has continued through so it’s hard to predict. At some point the sun will shine again … it’s just about when,” he said.