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In a Downturn, Consumers Hang On to Little Luxuries

I was chatting to a couple of CFOs about their approach to 2009 and it became plain people aren't completely cutting out all of their luxuries, even though the recession has begun to bite.

Peter Hatherly, CFO of Simple Health & Beauty explained that one of the last "semi-luxury" items out of a woman's shopping basket would be her moisturiser. Over at United Biscuits, Jeff van der Eems was similarly bullish. Pound-for-pound, a chocolate biscuit probably gives more pleasure than a new car or a foreign holiday, and the unit cost is low enough for even the hard-up to enjoy.

The news that Game, purveyor of console games, peripherals and software - has reported sales up by 32.2 per cent backs this up. The company puts this outstanding performance down to a well-managed supply chain, expert staff and smart acquisitions.

But I think there's another reason Game is doing so well at a time when spending on discretionary items, and luxuries in particular, is falling.

People have cut back big-ticket purchases. So car plants are on short time or shuttered and Luxury clothes-makers are suffering. More UK holidaymakers are choosing to stay to home. According to research firm TNS, 38 per cent of Brits won't venture overseas this year and large numbers are scaling back the number of holidays they plan to take.

The comparison between Game and the holiday industry is important, and tells us a lot about this recession. Simply put, people are focusing their hard-earned cash on making their life at home as entertaining and enjoyable as possible. So buying video games is still very much on the agenda, but a week in the Maldives is out of the question.

As van der Eems told me, "exposure to the in-home market is where it's at right now." Game has it. So do many other businesses. Mothercare, for example, is also trading well (like-for-like sales up 1.4 per cent for the quarter just ended) because new parents won't skip on budget baby-grows.

The lesson? Smart businesses - that are already tweaking their business model to reflect not just the downturn, but longer-term shifts in consumption and attitude - know that life's little affordable luxuries remain a strong play. Volumes hold up, and the margins needn't be wafer thin.

If you haven't got products in your inventory that have the ability brighten people's days at relatively low unit costs, you're missing out.

(Pic DaveCrosby cc 2.0)