The U.S. Consumer: What Are Their Latest Spending Trends? by Mari Shor and Stephanie Schneider, Columbia Threadneedle Investments
- Consumers are increasingly spending on experiences over things, while spending on durables continues to take share from non-durables.
- Traditional retailers are likely to remain under pressure for the foreseeable future although there are several categories which are bucking the trend.
- Given these pronounced shifts in consumer discretionary spend, it is increasingly important to identify categories and brands that are poised to outperform.
On the surface, the U.S. consumer is better positioned than in recent years. Wage growth and employment are improving, as reflected in increased consumer confidence. However, digging deeper, we find that the U.S. consumer is becoming increasingly discerning about how and where they spend their discretionary dollars.
Generally speaking, consumers are increasingly spending on experiences over things. Furthermore, spending on durables (autos, homes) continues to take share from non-durables (clothing, accessories) as consumers reconsider their definition of “investment piece.” Even with clothing and accessories, consumer tastes have shifted away from conspicuous consumption and towards health and wellness as a display of wealth. For instance, it is now more socially acceptable and desirable to spend $150 a month on a gym membership and $100 on a pair of yoga pants than $500 on a logo-emblazoned handbag. These shifting behaviors represent a change in lifestyle for many consumers, and, as a result, should impact consumer spending for many years to come.
Through retail earnings season, we have seen further confirmation of these themes. In the apparel space, traditional retailers such as the department and mall-based specialty stores posted weaker-than-expected results as both cyclical and structural headwinds continue to mount. Specifically, these retailers are facing increased competition from more value-driven online and brick-and-mortar retailers (such as Amazon, off-price retail and fast fashion) and are simultaneously being hurt by unfavorable weather and tourism trends. Given the imbalance between supply and demand in apparel retail, traditional retailers are likely to remain under pressure for the foreseeable future. However, as cited above, there are several categories including athletic footwear/apparel, auto and home which are bucking the trend.
Companies such as Nike, Under Armour, Lululemon, Skechers and Foot Locker continue to benefit from a shift in fashion trends towards comfort and superior product innovation. Consumers are also purchasing bigger ticket durable goods with auto sales (the SAAR, or seasonally-adjusted annual rate) hitting highs of 18.1 million units in October and auto-part retailers such as O’Reilly and NAPA growing top line 5-6%. In addition, categories that touch the home such as home improvement and home furnishings have seen robust growth and continue to outpace the rest of retail. Consumers have been spending $182/month/household on home improvement which is roughly $20 more than the 15-year average and spending $74/month/household on home furnishing $10 more than the 15-year average (Exhibits 1 and 2). While a large portion of the strength in the home categories is attributable to a rebound in the housing market, the duration of this trend may highlight consumer desires for personalization. Whether it’s browsing DIY projects, monogramming, personalizing small appliances or customizing shoes (Nike), consumers are welcoming retailers’ strategy to offer exclusive, differentiated and personalized products.
Given these pronounced shifts in consumer discretionary spend, it is increasingly important to identify categories and brands that are poised to outperform. In this increasingly competitive environment, the gap between share gainers and donors should only continue to widen.
Exhibit 1: Consumer spending on home improvement is $20/mo more than the 15-year average
Source: Factset, U.S. Census Bureau retail and CPI data as of November 20, 2015
Exhibit 2: Consumer spending on home furnishing is $10/mo more than the 15-year average
Source: Factset, U.S. Census Bureau retail and CPI data as of November 20, 2015
