Page last updated at 11:46 GMT, Tuesday, 26 January 2010

The new consumerism frugal and cautious?

By Hugh Pym
BBC chief economics correspondent

Broken piggy bank
Will shoppers still be prepared to raid their piggy banks?

The recession may technically be over, but there are few signs that consumer spending and confidence will bounce back in a hurry.

The burden of debt still hangs heavily over households. The question now, is there a new sense of frugality and even a return to a "make do and mend" culture?

Anecdotal reports suggest that something fundamental may have changed in consumer behaviour.

The recession of the 1990s was followed by a period of retrenchment as households increased savings.

That is already happening this time. But there is a growing sense that people, scarred by the credit crunch and a much deeper recession than in the 1990s, are making big changes to their lifestyles.

Retailers are adjusting to the new reality and preparing for a very different environment to the borrow and spend culture which prevailed in the boom years leading up to 2007. They know they will have to fight a lot harder to pull cash through the tills.

Stores wary

Asda has spotted an intriguing shift in spending patterns as customers "trade down" and look to stretch their budgets.

Sales of DIY and car maintenance products have risen sharply, as have home sewing kits. Tupperware sales are up too as people take home cooked food into work.

Qasim Latif, owner of "Linens and Things"
The High Street trend is changing
Qasim Latif,Shopkeeper

The losers are ready meals, with customers more willing to cook themselves. Premium priced organic vegetables are a lot less popular.

Asda's chief executive Andy Bond believes consumption will be subdued for some time and that changes to shopper behaviour are here to stay for the foreseeable future.

Even with the economy growing again this year, he expects life will be even tougher for consumers.

"We're still feeling quite concerned for customers - certainly average incomes are not going to go up much this year - mortgage rates are going to go up a little bit - taxes in different areas will go up," he says.

"Customers on average will have slightly less to spend this year than last year."

Changing trends

Small shopkeepers are adapting to a post recession landscape as best they can. Some have fallen by the wayside, unable to cope with the savage spending squeeze. Others have radically changed the way they do business.

Qasim Latif owns "Linens and Things" in the Kings Heath area of Birmingham. Customer numbers fell dramatically last year and he struggled to keep his business afloat. His survival plan was based on the internet and this new sales channel has performed well.

Alan Robinson and Debbie Watson
Alan Robinson and Debbie Watson say they have reined in their spending

Mr Latif regrets the change because he fears that he may eventually have to close the shop down and become an online-only business. But he knows that this could be the only profitable way to sell his linen products and towels to bargain hungry consumers.

"The High Street trend is changing," he says. "Everyone is changing to the internet - 50-60% of my revenue is coming from the internet maybe for good. Maybe I will move onto the internet, close the shop down and change it into a big stockroom".

New approach

So what do consumers think? Alan Robinson and Debbie Watson, from Coventry, count themselves lucky as they are both in work. She is a teacher. He worked in aerospace engineering and lost his job during the recession. But after six months he got a new job, though less well paid, in sports administration.

Alan and Debbie are certainly not planning any spending splurge to mark the official return of economic growth. They have a mortgage to pay and the recession has left them wary of taking economic stability for granted.

"Certainly in the last 12 months we've become very wary of spending; obviously we had to with me being made redundant," says Alan.

Debbie is under no illusion that things will return to the 2007 boom era.

"I don't think we'll ever spend like we did necessarily before. We'll always be a bit more cautious now," she says.

Caution and prudent debt reduction may be a good thing for the health of the economy long term.

But if growth is to pick up this year and next, manufacturers and retailers need consumers to raise spending.

If there is a new frugality and a return to austerity, the economy may struggle to get back on a smooth growth path.



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