Consumers Poised to Ditch Their Frugal Ways?

Are consumers getting ready to shed their frugal ways?

Shoppers in a toy aisle at a Target store.
Stephan Savoia
Shoppers in a toy aisle at a Target store.

Last month's retail sales reports from sowed the seeds of hope that the consumer was on the rebound, but this month's batch shows signs of deterioration.

Sales-weighted same-store sales excluding Wal-Mart fell 4.2 percent in May from the year-ago period, according to market research firm Retail Forward. That was worse than the 2.3 percent decline last month and the 1.9 percent gain in May of 2008 for the same group of 30 retailers. Including Wal-Mart, same-store sales were up 0.9 percent in April and 3.2 percent in May 2008.

To be sure, there is a lot of noise in the results. First, the 800-pound gorilla in the room, Wal-Mart Stores , is missing from the results. The world's largest retailer has followed retailers such as Sears and Home Depot and ended its practice of issuing monthly sales reports.

Retailers also are up against a tough comparisons, as last May sales were boosted by government economic stimulus checks.

Despite the disappointing results, Retail Forward Senior Economist Frank Badillo said he sees positive signs for the consumer.

"The aggregate sales numbers may not reflect it for a while, but shoppers are showing signs of moderating their frugality of recent months," Badillo says. "If shoppers can sustain this positive momentum, then it should bear fruit for retail sales by the end of the year, if not the coming months."

Badillo is drawing his confidence from several sources. He says consumer confidence is improving, particularly in how consumers are viewing their prospects for the future.

Also, if jobless claims continue to slowit will bolster confidence further and set the stage for an improvement in retail sales.

"Our forecast still calls for declines in retail sales into the third quarter, so we are still talking about some pretty ugly-looking retail numbers ahead of us," Badillo says. But he's been looking for a signs of a turning point and feels there are some positive signs of a bottoming.

A survey conducted by his company also backs up his opinion. Each month, Retail Forward conducts its ShopperScape survey. Compared with responses last August, markedly fewer households in May said the economic downturn had significantly changed their shopping behavior this year. In August, more than one-third of households said their behavior had changed significantly. In May that percentage dropped to nearly one-fourth.

But others are less sure.

"We do think the consumer is still really quite stressed," says Craig Johnson, president of Customer Growth Partners.

"Discretionary retail spending remains at multi-year lows," he says, "and will remain low as long as the economy keeps shedding a half a million jobs or more each month."

Adding to the fear, is the unnerving pace at which gasoline prices have risen in the past month, Johnson says. (For more on how gasoline prices may hurt consumer demand, click here.)

"Gasoline prices are up at least a full 50 cents in the last 30 days," he says. "That's an exceptionally rapid rise."

These factors are prompting consumers to hoard their money, and limit spending to all but the essential purchases, he says. Even then, consumers are opting to buy items only at the time they are needed.

Badillo agrees that consumers taking steps to stretch their dollars but some of those behaviors are starting to soften, according to the ShopperScape survey.

For example while the majority of shoppers say they want to buy fewer things, smaller percentages of shoppers are reporting they are using methods to limit spending, such as buying only things they truly need, shopping less often, buying fewer luxury times, postponing purchases, and keeping things longer.

Trading down to less expensive versions of the same product is also on the wane, Badillo says. However, one-fifth to one-third of the shoppers who have altered their behaviors are trading down in some ways.

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