Consumers Intend To Spend But Remain Cautious of Where

Consumer intent to purchase is rising a study by research firm NPD Group suggests, but the sales benefit from that may be limited to the very same bargain retailers that have been most successful in the recession thus far.

NPD’s Retail Response Indicator, which measures consumer spending intentions on scale where zero corresponds to definitive plans to spend less and 100 represents definitive plans to spend more, rose almost 4.5 points, from 39.5 in April to 43.9 in May. The indicator has been on an upward swing since March and has reached its highest level since October of last year.

Of course, consumer confidence also gained in May with the Conference Board reporting that its index now stands at 54.9 up from 40.8 in April.

Despite that, the International Council of Shopping Centers reported last week that major retailer sales fell 4.6% in May versus the same period last year, deeper than the two percent decline the organization expected.

Generally, consumer attitudes toward the economy and spending are predictive of actual purchasing but, despite gains, the numbers are historically low. Evidence from monthly financial announcements that major retailers made last week demonstrates that May retail sales generally were weak except at low price retailers, especially dollar stores.

Marshal Cohen, chief industry analyst at NPD, explained the increasing intent to purchase amidst mixed retail sales by resorting to an increasingly common refrain, stabilization. He said:

The continued increase suggests that stabilization is holding. We are seeing consumers move toward replacement and replenishment purchasing and these are the kinds of purchases that would indicate we have taken the first step toward recovery.

But what kind of recovery? On Friday, Wal-Mart CEO Mike Duke, told employees and shareholders at the company’s annual meetings that it would hold on to customers who had begun shopping its stores in the recession. His predecessor Lee Smith last year declared that a new consumer would emerge from the economic downturn, one who valued thrift, who would be determined to get the most from a dollar, who, basically, would shop at Wal-Mart.

The recession as it impacts retail may be bottoming out. The United States Commerce Department’s May retail numbers are due Thursday, and Bloomberg is predicting they will relate a 0.5 percent increase with automobile sales boosting the numbers. Overall, the evidence suggests that consumers intend to purchase but still intend to do so cautiously. The longer that attitude prevails, the longer bargain retailers gain and their more upscale rivals suffer. The suffering may come in the form of lower profits, sales or – for those retailers who have kept other numbers looking good by cutting costs — market share. In the meantime, consumers will become increasingly acclimatized to shopping at bargain retailers they once might have bypassed, which could prove Duke and Scott correct.