Big Changes in Discretionary Spending Habits

Many people would say “what discretionary spending money?” these days with high unemployment, household debt and no real wage increases. Recent data released by the Commerce Department shows that the portions of household income that consumers spend on cars, food, and household items have changed, somewhat dramatically since the beginning of 2009.

While the financial recession officially started in 2008 (or the peak was in October 2007), most people did not feel the real recession hit until the massive layoffs that happened in the beginning of 2009. With this came sharp cutbacks in spending until individuals could assess how much money they would need to ride out the recession.

Consumer spending has rebounded in total off of the lows of 2009, but most importantly there has been a shift in the percentage of the spending total on different categories within the discretionary spending.

Cars have remained at about 16-17% of spending, but gas costs have gone from 8% to 12%. That money for gas has to come from somewhere, and it’s been taken from department stores (-1%), food and beverage (-1%), and bars and restaurants (-1%).

Has anything gotten more of our money than the oil companies? Internet sales are up (1%) which offsets some of the retail store losses (much of which is probably taking from local merchants).

Result: most people have a fixed amount of household debt to pay every month, but the discretionary portion of their wages in increasingly going in the tank out out the tailpipe at a much higher rate than they are shifting their buying habits online. The end result is that retail stores and food/beverage establishments are taking the brunt of the increase in energy costs.

How We Discover New Things

Everyone believes they come up with their own ideas for entertainment, knowledge, and happiness, but many times that new “discovery” is via an external source. With the always-on aspect of the internet, it appears all knowledge and information is at your fingertips.

It is common today for people to research products and services they do not know much about, and make a buying decision based on that research. This means that the best chance of selling that product or service is based primarily on the positive result of their research. How does a brand lead a positive influence loop to interested consumers?

Many times people type in keywords into a search engine like Google or Yahoo. If they know the product name itself, Amazon is the most used review site. Consumers must filter out the fake reviews in their head, of which they are trained to be skeptical of 50% of all reviews either positive or negative. Relevant information is consumed, and a decision gets made. Many times the “Like” button is pressed, which allows the person’s Facebook network weigh in on a potential purchase.

What causes one to look up “double rainbow”? More often than their best friend, the most common influencer on a daily basis is co-workers or those who are in close proximity to the consumer. While the true friends influence life’s big decisions, many times the Facebook friends or the acquaintance network is the main purchase influencers for consumable non-durable goods.

The Curious Case of Social Media Not Selling Products

Charlie Sheen and Lord Voldemort have been hot trending topics on twitter. Products with a tie-in to these subjects were marketed in 2011 and I analyzed the data to understand the outcome. Millions of people saw the funny t-shirts, over 150,000 people clicked through to the buy now page, yet almost nobody bought it. What causes something so entertaining not to convert to sales?

Standard ecommerce metrics are that 2% of visitors convert to sales. If this was the case we would see a sales north of 3000 shirts for the traffic generated through twitter marketing. The twitter accounts used are in the top 99.99% of all tweeters as monitored by

The products offered were not relevant to the audience that clicked to find out more. Relevancy is the number one reason a product resonates with the consumer or not. The product must fulfill a need and desire that matches the sensibility of the buyer. There has been a dramatic trend in popular culture of people enjoying the entertainment of Winning or Tiger Blood, but not participating with their wallets.

The actual statistics on views and sales were as follows:

Charlie Sheen Shirt

  • 47,606 actual product page views from Twitter over 3 days
  • 77 sales in 3 days
  • Conversion rate .16% vs. 2.33% conversion on all other products on site

Lord Voldemort Shirt

  • 119,057 actual product page views via Twitter posts over 3 days to 1,000,000+ followers
  • 9 sales in 3 days
  • Conversion rate approximately 0 vs. 2.12% conversion on all other products on same site

Conclusion: The offer has to be relevant to the viewer, and not just entertaining in reference to popular culture. The product has to represent how the buyer wants to be seen by others, and how they view their “most perfect” selves.

Are the Wealthiest People Coming Out Of The Recession First?

The top spenders in the market are showing their part of the economy is recovering. This is evidenced by the recent year-over-year increase in luxury goods spending as reported by American Express and Bain & Co.’s Luxury Goods Worldwide Market Survey.

Luxury goods, defined as non-durable items priced at $1,000 and up, such as apparel and accessories, saw a 15% increase in 2010 and is expected to have an additional 8% worldwide increase in 2011.

Three things seem to be fueling this material consumption. In the US, the stock market is up 100% over 2009 lows. It has been shown that 40% of the top 1% of all wage earners in the US has a substantial portion of their wealth in the stock market.

In Asia, the economies have been booming and minting newly made luxury buyers by the sheer numbers of the population. China is the fastest growing luxury market, with an expected 25% growth in 2011. It is still smaller in total dollar size than the U.S., but China is projected to be larger than Japan shortly.

Lastly, the real estate market in the United States seems to have double bottomed, as rents are firming up along with occupancy rates for wealthy landlords with higher real estate holdings.

Many luxury retailers are still feeling the lingering effects of the recession, as sales vary widely month-to-month, depending on their clients near term mixture of good and bad news in their personal financial situation. There has been a significant improvement in margins, as excess inventory has been cleared. Sell-through of current season merchandise, along with a lingering desire for sale shopping, continues to drag on profits as predicting future season best-sellers has become more art than science in recent seasons.