Despite low energy costs, consumers are hoarding money instead of going on a shopping spree.
This might be about to change.
By Seth Mendelson
FROM THE PUBLISHER
WHEN DOES TWO PLUS TWO NOT EQUAL FOUR? The answer is when something that should happen does not and there is
no rational explanation for it.
Welcome to the state of the economy in
early 2016. As energy prices plummet to levels not seen in a decade or more, one would
think that consumers—flush with more discretionary dollars
thanks to both lower
gas and heating oil
flooding retail stores
looking for anything
to make them happy.
At the same time you
would expect the
stock market, long a
barometer of just how
well things are doing
in corporate America,
to be soaring to new
highs, creating even more enthusiasm on
Main Street, which, in turn, would lead to
even greater retail sales.
Well… not quite. Instead of booming
retail sales and high stock prices, consumers
seem to be putting their savings away for
a rainy day at a record pace; and the stock
market is caught up in one of those ugly
bear markets that has many nervous investors worried that this is 1929, or at least 2008,
all over again.
I do not buy it. In fact, as long as energy
prices stay low—no guarantee with much of
the world’s oil supply coming from the volatile Mideast—I have little doubt that consumers will begin to increase their level of discretionary purchasing in the months ahead.
And I do not think you buy it either.
At the unusually upbeat FMI Mid-Winter
Conference in Miami in late January, many of
the supermarket and CPG executives I talked
with said that their sales volume has been
picking up in recent months. More importantly, a number of suppliers stated that R&D
activity at their companies—and their competitors—has not been this frantic since the
mid-1990s, also known in these parts as the
Go-Go 90s of low unemployment, low inflation and increasing retail sales.
It is time, many said, to invest in their operations because it is going to pay off in spades
if things keep going this way.
Businesses looking to grow their profits do
not make these types of investments when
they think things are about to go bad. They
do make them when they are pretty confident that consumers are going to flock to
stores and be on the lookout for new and
snazzy merchandise that they only buy
when they feel good about their own financial standings.
What is next? For supermarket retailers, it
may be as simple as making sure that their
stores meet the needs of their targeted customer base—to be clean, organized and competitively priced. For suppliers, it may mean
taking a chance now with product introductions and, yes, a price hike or two when consumers may not be paying as much attention
to what they pay at the cash register.
Good financial times do not last forever.
So it may be the right time now to take those
steps to be ready when they do arrive. But
always with a backup plan in case we are
Seth Mendelson is publisher
and editorial director of Grocery