A recent Washington Post articlehighlighted an emerging trend among retailers in response to shifting consumer spending patterns: retailers at all levels—from Starbucks to Pottery Barn—are cutting prices and introducing lower-priced ranges of goods to try and entice people back into the marketplace.
According to one consultant cited in the piece, that's a sign that retailers are "reacting to a very low-appetite consumer and a consumer that has now been taught to wait." (Emphasis added.)
Despite falling prices being a strong sign that we are entering a deflationary cycle, the article nonetheless includes quotes from an expert who believes that current cuts are "more of a marketing strategy to win over reluctant shoppers." However, there's a legitimate question that the piece fails to address: what happens if those "reluctant shoppers" who have "been taught to wait" are learning a whole other way of living—one that doesn't revolve around consumer spending and accumulation of goods?
In a piece of great coincidental timing, an article by Jennifer Senior in New York magazineaddresses at least part of that question. Analyzing the likely fate of Manhattan in the post-Wall Street/housing bubble/financial industry world, the article projects a future in which people spend more time volunteering and finding spiritual fulfillment, and where the middle classes can afford to take back the island (or some of its apartments, anyway). Note that it's not all pie-in-the-sky projections either, but rather an extrapolation based on trends that have begun shaping since the onset of the recession.
Coupled with that, Senior also points out a correlation—uncovered by Lisa Kahn at the Yale School of Management—between the unemployment rate when a student graduates from college and the starting salary they can expect to earn. "Each point on the unemployment rate at the time of graduation translates into a 6 percent decrease in starting salary," writes Senior. "Specifically: Kids who graduated in 1988, when the unemployment rate was 5.5 percent, made 24 percent more their first year out of school than those who graduated in 1982 (even adjusted for inflation) because the unemployment rate was four points higher, at 9.5 percent. Fifteen years later, there was still a 10 percent differential between them."
So, all of that appears to herald a future in which people earn less, seek out careers that offer stability and fulfillment rather than massive salaries, and get by without the conspicuous excesses of the last couple of decades. (Maybe: there's always a chance that another bubble will inflate somewhere in the economy and we'll start the boom-bust cycle all over again.) Should that shift in paradigm be fully realized, the retailers from the Washington Post piece seeking to "win over reluctant shoppers" may find that the reluctance comes from people no longer viewing themselves as "shoppers"—truly a worst-case scenario for anyone in the industry.
The consultant who considered price cuts to be a marketing strategy in the Post piece also had the following quote attributed to him: "Prices, especially in the retail sector, are very easy to change," he said. "As soon as the nature of consumers will change, prices will respond in the same way." (Emphasis added.)
The quote is presented as a reason to look forward to a bright future in which consumers emerge from a winter of cost-cutting and once again begin loosening their purse strings, propelling the economy back to health. Considered in isolation, however, and especially in light of the New York piece, the statement reveals another edge: if prices can be altered easily to reflect shifts in consumer behavior, a shift such as that predicted in New York may well see us looking back at the current wave of price cuts and enticements as a mere starting point on a downward slide.
If that's the case, the question then becomes: how's your business placed to cope with that as a potential outlook?
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Phil Stott is a staff writer at Vault.com in New York. Originally from Scotland, he has also lived and worked in Japan, South Korea and Eastern Europe. He holds an MA in English Literature and Modern History, and a Masters in Research in Civil Engineering, both from the University of Dundee.
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