U.S. Consumers Trade Down As Economic Angst Grows

From The Wall Street Journal:

Spurred by economic worries, American shoppers have quickly decided that cheaper is better. They are trading down to store brands from fancy labels, to small cars from SUVs, and to deep-discounters from full-service stores.

Wal-Mart Stores Inc., which last year returned to its discount roots to try to reverse weakening sales, Thursday reported its best monthly sales gain in four years; it benefited from bargain-hunters seeking deals on the most basic stuff.

Discount stores overall saw sales jump nearly 6% last month, while those of full-price department stores declined. Consumers' use of discount coupons is starting to rebound after a 15-year slide. In June, the lowly Toyota Corolla became the best-selling vehicle in America, a spot held for more than two decades by the beefier (and pricier) Ford F-150 pickup.

Trading down is a common consumer reaction to economic ills. But this time around, the change has come unusually fast and may be touching on the broadest array of goods since the recession of the early 1980s. The combination of historically high fuel prices and soaring food costs, combined with falling housing and stock values and tightening credit, are severely damping the spending habits on which the U.S. economy has long thrived.

The about-face in consumer behavior could bring striking changes to the marketplace, as retailers revamp everything from the size of their stores to the way they stock their shelves, and may force manufacturers to trim niche products in favor of more reliably selling basics.

The shift challenges a 20-year embrace of ever-pricier exotic foods and a widening array of luxury goods. In the 1980s, Americans warmed to designer labels, Egyptian cottons, and shopping as a form of entertainment.

Now, consumers are pessimistic that their ability to spend will improve any time soon. Two-thirds of Americans expect the current slump to last for several years . . . .

One retail trend already under way may mesh well with the change in consumer habits. Retailers known for their "big boxes" -- Safeway Inc., Tesco PLC and Wal-Mart -- have or will soon introduce small 10,000- to 15,000-square-foot stores that fit into neighborhoods and contain just a few thousand products.

A typical 50,000-square-foot grocery store sells 20,000 items. But most homes buy fewer than 1,000 items a year. Stores that can correctly pinpoint customers' choices will earn higher returns on these smaller spaces.

[S]aving money is replacing conspicuous consumption as the object of awe. Linda Butler, a Portland, Ore., homemaker who has used coupons for decades, says that in the past six months she has often been approached in the checkout lanes by other shoppers seeking shopping advice. The 51-year-old homemaker routinely cuts a $150 grocery bill down to a $40 outlay through intensive use of coupons.