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Consumers Haven't Changed, They Are Just Pickier

Published: Friday, 6 Nov 2009 | 2:54 PM ET

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By: Christina Cheddar Berk
News Editor

When consumers shut their wallets tight last year, caught in the vice grip of the financial crisis, many analysts expected that the downturn was so severe that it would make permanent changes in how consumers behaved.

John Lund | Blend Images | Getty Images
Consumers appear to be opening up their purses a little more, but they will be picking and choosing where they want to spend very carefully.

They conjured up images of grandparents who lived through the Depression and then forever saved sugar packets and plastic bags and never used a credit card. They expected that Americans would emerge from the Great Recession forever changed.

It helps to remember where we were at that moment: many consumers were in such a state of shock over falling home values, dwindling retirement savings and threatened jobs that they were even avoiding buying grocery items at the supermarket. Instead, of shopping they were rummaging through cupboards to cobble together a dinner from items they had already bought.

But it is starting to appear that some consumers are moving past the emotion of that time.

Even as unemployment soars disturbingly to 10.2 percent, its highest level since 1983, there have been some small signs of consumers shifting away from buying only the basics to making small purchases of more discretionary items.

One example is improved trends at Starbucks [SBUX Loading... () ]. It appears the death of the $4 latte was declared too soon. The Seattle-based coffee chain boosted its earnings forecast late Thursday, and said it was cautiously optimistic about the coming holiday period.

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There also were plenty of signs to sift through in the latest batch of retail sales reports. Perhaps the most notable was at the luxury department stores Saks [SKS Loading... () ]and J.W. Nordstrom [JWN Loading... () ], which saw their first same-store sales increases since May 2008.

Richard Hastings, a consumer strategist at Global Hunter Securities, said the home furnishings sector is also pointing to a cycle bottom.

"Consumer purchases of home furnishings and home softlines and decor typically deteriorate early in any consumer cycle, but rebound as soon as the cycle bottoms out," Hastings said, in a research note.

There has been an increase in online traffic to home furnishings Web sites and in favorable comments about the category from retail executives, Hastings said. These retailers include Bon-Ton Stores [BONT Loading... () ] and Big Lots [BIG Loading... () ], which both cited the segment for improvements in their recent performance.

Sure companies have made adjustments to how they have positioned themselves during this period. Starbucks, for example, cut prices on its easier-to-make beverages, while raising the prices of its more complex drinks by as much as 30 cents. It also rolled out Via, an instant-coffee product, to broaden its reach beyond its cafes.

The strategy may be paying off. Sales at Starbucks stores that have been open at least a year declined 1 percent. That's an improvement from the fiscal third quarter, when same-store sales fell 5 percent.

Consumers are beginning to pick and choose where they want to loosen their purse strings. And that might meaning relaxing enough to splurge on a venti caramel macchiato once and a while.

"They were buying necessities, they are starting to buy needs, and soon, they will begin to buy wants," said Marshall Cohen, chief industry analyst at market researcher NPD Group. He believes "frugal fatigue" is starting to set in among consumers.

Still, he suspects, the shopping habits of those small slices of consumers who were buying well beyond their means before the recession will undergo a lasting change. However, other consumers will not be permanently impacted by this recent downturn.

"It will be back to the way things used to before all of this conspicuous consumption and reckless disregard for reality," Cohen said.

And that may mean that the consumer hasn't really changed all that much, they are just going to be a bit pickier.

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Topics:Economy (U.S.) | Consumers

Sectors:Travel and Leisure