A recent survey from the Pew Research Centerfound, “of the 13 recessions that the American public has endured since the Great Depression of 1929-33, none has presented a more punishing combination of length, breadth and depth than this one.”
The study continued that this new norm has forced the “downsizing of Americans’ expectations about their retirements and their children’s future; a new frugality in their spending and borrowing habits.”
In the new book, SPEND SHIFT: How the Post-Crisis Values Revolution is Changing the Way We Buy, Sell, and Livethe authors John Gerzema and Michael D’Antonio, say since 2007 — even before the crisis — there has been a spending revolution in the making. That’s right – BEFORE this great recession, Americans were becoming uneasy with debt and excess spending.
Americans they claim, are longing for something more than what they can buy at the malls.
Armed with research gathered for more than 17 years the authors say Americans are undergoing a radical but positive shift in values; back to the basics - away from the buying frenzy of the last few decades, and they say these spending changes are prompting new behaviors that will change our society for the better.
This holiday season the authors say we'll be seeing a lot of this new mindful spending as Americans look for "quality over quantity" and "better instead of more." Here are some example they've provided CNBC:
- Look for Zappos.com to win the online shoe retailing war with its celebrated customer service, while brands like Foot Locker will decline. Even though Black Friday shoppers are deal-oriented, 72% of American shoppers are now willing to pay more for products/services offered by companies with solid customer service reputations;
- Premium brands expect a surge, i.e., Burberry up 15% in brand strength; Theory up 59% in usage and Whole Foods up 10% in usage;
- Mass market mainstays may find decline, i.e., Old Navy (down 15% in usage); Safeway (down 23% in usage), and Nestle (down 17% in usage);
- Expect Wal-Mart to exceed expectations this Black Friday. Why? In part because 65% of American shoppers are now willing to pay a premium for companies that contribute to their local community — the success of Wal-Mart’s locally grown food initiative and independent brands is proof.
Click on to the next page to read an excerpt from SPEND SHIFT: How the Post-Crisis Values Revolution is Changing the Way We Buy, Sell, and Live
EXCERPT FROM SPEND SHIFT - THE NEW AMERICAN DREAM
Reprinted by permission of the publisher, John Wiley & Sons, Inc., from Spend Shift: How the Post-Crisis Values Revolution Is Changing the Way We Buy, Sell, and Live, by John Gerzema. Copyright (c) 2010 by John Wiley & Sons, Inc. All rights reserved.
The shifts in how people spend time and money can be seen in many recent trends. For example, we see evidence of a move from a credit society to a debit society. In 2009, American credit card debt actually declined by 20 percent, marking the first decline since 1998 as people shed the weight of excess debt. In 2009 Visa announced for the first time that its customers were relying more on debit cards than credit cards for their transactions. The FDIC found another spend shift—people were using earned rather than borrowed money to make purchases without running up debt.
If the old American dream was “having things,” now it’s “having agility.”
And in many ways, people are finding that as they become less materialistic they feel freer, less encumbered, and more available to opportunity. To get these feelings, people have set about systematically eliminating fixed costs and overhead expenses, preferring pay-as-you-go living. Trends affecting two old-line institutions—the post office and the phone company—illustrate the move toward thrift and agility.
In 2009 the U.S. Postal Service, which is creeping toward a fifty-cent first class stamp, experienced its largest mail volume decline in its 243-year history and has pulled up twenty thousand blue mailboxes from America’s cities (officials are also considering an end to Saturday delivery in order to cut costs). In this same time period, expensive “land line” phones have begun to disappear. According to Verizon’s estimates, these sets, which once hung on almost every kitchen wall, will disappear by 2025.
Fortunately, the spend shift isn’t pushing aside every old-fashioned institution. In early 2010 a New York Times/CBS news poll found that due to the recession, people were spending more time with family and friends or pursuing hobbies. One of the more popular “hobbies” seems to be sex, as condom and sex toy companies report higher sales. Other data showed the decline of the large “McMansion” suburban house (which is expensive and time-consuming to maintain) and a move back to America’s cities. USA Today noted the recession halted forty straight years of double-digit growth in suburban living. The downsized home is another recent national trend. The U.S. Census indicated that the American single-family home declined in square footage, reversing five straight decades of expansion. Surveys by the National Association of Home Builders found that 88 percent of its members plan to build smaller homes this year.
Curious about the new nimble consumer, we modeled an index of “Liquid Life” brands and companies who represent the top 10 percent on imagery such as “simple,” “independent,” “adaptable,” and “dynamic.” These companies (such as Geico, Bit.ly, and Progressive) sell goods and services that are supposed to defeat complexity, encourage mobility and agility (iPhone, Google Maps, and Foursquare), and help you make independent choices (WebMD, Hunch, and Yelp). These nimble, simple, adaptable brands outperformed their competition in an exceptional manner:
- One of my favorite brands +456 percent
- Feel loyal to the brand +444 percent
- Would recommend to a friend +360 percent
- Use regularly +212 percent
- Prefer most +195 percent
As people stripped away excess and complexity, they also moved away from artifice and displays of ego. This all shows up in our data, where things like envy and lust for expensive cars and homes declined by 26 percent between 2007 and 2009. (Luxury brands declined by 19 percent.) Perhaps the single biggest symbol of this spend shift was the General Motors decision to abandon that 1990s emblem of excess, the Hummer. By the start of the Great Recession, auto buyers just didn’t want a car that represented such conspicuous consumption. (Of course, they may also have been influenced by reports that Hummer drivers got nearly five times as many tickets as the average driver.)
"For those who have discovered that when they decide against buying a new car their self-esteem is not affected and their old car continues to run well, the Great Recession has delivered surprisingly upbeat news about their own resilience.""
Alongside these shifts is the way thrift has blossomed to produce a socially sanctioned frugal lifestyle. In 2009, 58 percent of Americans (and 67 percent of Millennials) reported that they used coupons to make purchases.Booz & Company found that two-thirds of consumers frequently use coupons, value price over convenience, and believe saving is more important than spending. In another spend shift sign, dollar stores like Dollar General and Dollar Tree rose up in the ranks of the Fortune 500. And in BrandAsset Valuator, 95 percent of Americans believed that even when the economy recovers fully, they’ll continue to put time and effort into finding the best deals possible (with 42 percent agreeing strongly).
All these numbers support the notion that people aren’t waiting for government or corporate leaders to show them how to respond to crisis. They are, instead, moving almost reflexively, on their own, to adjust and adapt. This phenomenon is not dependent on gender, age, or even income level—all groups are participating— although the Pew Research Center has found that it is, understandably, less pronounced among the affluent. Nevertheless, Pew has seen enough of a spend shift to conclude that 80 percent of all adults have pared back their personal list of goods and services they deem essential to a happy life. “Yesterday’s necessities,” Pew announced in April 2009, have “become today’s luxuries.”
With big and somewhat mysterious economic and political forces driving these shifts, even the most esteemed experts cannot predict precisely where public sentiment will go. A few miles southwest of Everett, John Quelch has been watching the fluid way people adapt to change from his perch as professor at the Harvard Business School, where he studies, among other things, democracy and the marketplace. Quelch is fascinated by the question of whether people will snap back to their old overspending ways or we’re witnessing a permanent change.
“For those who have discovered that when they decide against buying a new car their self-esteem is not affected and their old car continues to run well, the Great Recession has delivered surprisingly upbeat news about their own resilience.” The same people are also discovering that they can be happy after moving from a mini-mansion to a smaller house or even an apartment, or from a home they owned to a rental. As noted, in an abrupt end to a decades-long trend, the average new American house was actually smaller (by 10 percent) in 2009 than in 2008. During the same period, home ownership declined while renting increased. In a market where selling a home can be extremely difficult, renting allows people to move more nimbly to take advantage of opportunities.
When these changes yield lower consumption, they can produce social benefits like reduced carbon emissions as a matter of course. Quelch notes that this people-driven shift happens with fewer struggles than when policymakers try to impose similar measures from the top. For a contrast he points to President Jimmy Carter’s attempt to reduce American energy consumption in the late 1970s. “In fairness to Carter, he was trying to legislate this stuff,” notes Quelch. Today, while conservation and global warming may be a key political concern for some spend shifters, far more people are taking action for practical reasons—and that group, adds Quelch, is growing because they are reaping the benefits directly. “Wise companies,” he adds, “will make it easy for people to get information about how their products reflect this trend by saving them time and money while making the world a better place.”
As experts like John Quelch note, we signal our values and our priorities every time we make a purchase or decide where to invest our time and energy. In contrast, we participate in elections every two years or so. This means political choices are very crude and lagging indicators of public sentiment. If you want to understand how people really feel, track them day-to-day in the marketplace.
About the authors:
John Gerzema is President of BrandAsset Consulting, a Young & Rubicam Brands Company and author of a previous book, The Brand Bubble, which was named a best business book of the year by Amazon.com and strategy+business. His TED lecture on the post-crisis consumer has been viewed by tens of thousands of people. He has been interviewed by the Fox Business Network and other programs. For more, please visit: http://www.johngerzema.com/
Michael D’Antonio is a Pulitzer Prize winning journalist and the author of more than a dozen books including Forever Blue, Hershey, and The State Boys Rebellion. He has appeared on 60Minutes, Today, Larry King Live, Good Morning America, CBS Morning, and many public radio programs including NPR’s “All Things Considered” and “Science Friday”. They both live in New York.