Jan 29, 2009

Consumers get frugal, so retailers get creativeBy Jayne O'Donnell and Sandra BlockUSAToday.com

For years, dietitians have urged Americans to practice mindful eating. Eat slowly. Savor every bite. If eating chocolate cake, make sure it’s really good chocolate cake. Now, as the country slogs through the worst recession in decades, consumers are increasingly taking a similar approach to spending.

The change shows up every month in retailers’ dismal sales. On Tuesday, the National Retail Federation said retail sales are expected to drop 0.5% this year, the first annual decline since the NRF started tracking sales in 1995.

“Most of the consumer behavior we saw in 2008 will continue well into this year,” says Rosalind Wells, NRF’s chief economist. “Shoppers will be seeking value and trading down to discount and off-price retailers in order to stretch their purchasing power.”

Even though spending is expected to increase in late 2009, no one’s predicting a return to the devil-may-care shopping from earlier this decade. Now, when consumers spend, they’re paying more attention to what they buy. And this shift toward more cautious spending is likely to last.

Sales of furniture and clothing have been plummeting, with retailers in those sectors posting double-digit sales declines. On Monday, Home Depot announced plans to close its 34 Expo design stores, which sell high-end home decor items.

Essentials, such as food, health and beauty aids are selling, but even there, consumers are shifting to less-costly store brands. Consumers are still buying an occasional video game — an industry that’s proved to be largely recession-proof — but sales of big-ticket items, such as cars and vacation packages, have fallen off a cliff.

To survive, retailers are battling to convince these new, mindful spenders that their products deliver long-term value, not just empty calories.

“How smart you shop has become a new status symbol,” says Eric Gustavsen, co-founder of New York-based branding and design firm Graj + Gustavsen.

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