New Frugality Is Settling In, Nielsen Contends

We've heard a lot about the New Frugality lately, but is it fact, myth or hype?

Walmart's Mike Duke helped establish the idea that the American consumer would be fundamentally changed by experiences in the recession, and he posited a state, referred to as the "new normal," that was emerging from the financial wreckage littering the economy after last year's Lehman Bros. collapse, one he said would stick with us. Others have picked up on the theme, and terms such as frugal consumer and new frugality have become points of discussion in the most severe economic retrograde since the Great Depression. Specifically, those terms tend to come up when the discussion turns to how the recession is likely to affect consumer behavior long term.

So, The Nielsen Co. decided to survey about 2,500 consumers, including 500 households that saw a financial institution they deal with taken over or acquired. It discovered that while the intensity of the economic panic had subsided since 2008, concerns persist and new habits in spending and saving are solidifying.

Long-term behaviors have their basis in the present mindset, which already demonstrates a new attitude toward holiday activity. According the Nielsen, most consumers are saying this is not a good time to spend a lot of money. In the survey, consumers were offered a simple fill-in-the-blank prompt posed in the form: At this moment, the time to buy the things you want and need is--

Nielsen study participants responded heavily with "not so good." Combine that with those who said the timing was downright "bad," 71 percent of respondents told the research firm that they're not inclined to purchase readily in the immediate future.

The response, Nielsen pointed out, is consistent with skidding consumer confidence reported over the summer. Part of the consumer mood can be attributed to a focus on consolidating financial positions as a response to employment concerns and/or debt.

In the Nielsen study, one third of consumers said they have been using credit less versus 13 percent who acknowledge using it more. To control spending, consumers assert that they have been using cash, debit and checks as methods of payment. Almost a third of Nielsen respondents said they would use credit less in the future.

That's one for Duke, by the way, whose case for a new consumer includes the premise that the shopper retailers will confront in the future would be determined to live on the proceeds from each week's paycheck.

Today, middle class consumers are the most worried about the economy while the wealthiest are evincing less extreme concern, which might be good news if you're Nordstrom but not so much if you're Target. Nielsen found that those in its middle bracket, with a net worth of $100,000 to $249,000, expressed the highest level of concern in 2009. Households with mid-level net worth are more likely to include recent first home buyers who purchased at the market peak, the research firm noted, or took equity out of their homes to fund other lifestyle choices. They are very likely to harbor concerns about their financial position and not anxious to spend beyond means they already are subjecting to more rigorous discipline.

A third of consumers are anxious about their home values at a time when median sale price is down almost 17 percent year to year or about their mortgages at a juncture when one in eight such loans is delinquent or in foreclosure. Consumers are even more concerned about their retirement portfolios, Nielsen noted, as total family wealth has been on the skids since peaking in June 2007.

The research firm concludes that, despite less outright panic about the economy, personal concerns that go right down to belief in the American dream are shaping consumer behavior. The recovery and the economy that emerges from it won't be driven only by what's going on with GDP and employment but also by a strong desire for personal financial order. The panicked consumer of last year is emerging as a tougher consumer in 2009, one who will be disciplined going forward. So, it's likely that many of the stronger consumer product sectors in the recession -- food at home, moderately priced entertainment, and children's and pet needs -- will remain strong into the recovery and beyond.

Nielsen concludes that the attitudes behind the New Frugality are hardening, indicating that retailers will face a challenging consumer over at least the next three to five years. The frugal consumer might not be quite as much the Walmart shopper that Duke envisions, but, of course, his perspective is oriented from Bentonville, Ark. Still, it doesn't seem that he wasn't very far off earlier this year when he first began to discuss a new and much more critical consumer.