Costco CEO Sinegal Details Consumer Spending Changes

Just how consumers will respond to the economic downturn is a question retailers and their suppliers are beginning to understand, and evidence continues to accumulate that shoppers will spend money on the purchases that provide comfort and some amusement, particularly at home.

Consumers may be trading down, generally, and experimenting with bargain products and brands, but they haven’t snapped shut their pocketbooks as dramatically as the media sometimes suggests.

Speaking at the Pacific Market Center’s Winter Gift & Home Accessories Show on Friday, Costco CEO Jim Sinegal told retail buyers and wholesalers that the warehouse club’s members are buying more of its prime grade meat, which used to draw sales mainly from restaurants. Sinegal said consumers were skipping the middleman, represented by a chef in this case, and getting a little luxury for less. Discounts on deluxe items such as Coach handbags have generated a strong response from Costco members, too, and television sales are up. As regards TVs, Sinegal echoed Wal-Mart CEO Lee Scott, who spoke at the National Retail Federation convention in New York on Jan. 12. Scott said Wal-Mart had seen an upswing in flat panel television sales the week before but only when a good price and popular feature packages were combined. Sinegal said consumers are looking for televisions prices that leave little margin leftover, but they continue to spend on what they deem affordable luxuries they can enjoy at home.

Sinegal told The Seattle Times that Costco’s private label Kirkland business is up, too. Kirkland is well positioned for the emerging consumer shopping pattern as an alternative to national gourmet brands, often co-labeled with hallmarks such as Newman’s Own and Martha Stewart to establish its quality credentials.

Evidence for the larger trend comes from various sources. During a visit to San Francisco’s produce market last week, for example, wholesalers said their grocery store customers are still doing well, but selling somewhat less, with consumers purchasing lower priced, medium grade product more often or better quality goods in smaller quantities. Restaurants have been hit a bit harder but many continue to do a good business, their suppliers suggest, particularly on weekends. Weekdays may be a different matter as consumers cut mid-week visits to save money and because many businesses are reigning in expense accounts. Yet, money saved on restaurant meals isn’t necessarily being hoarded, as Sinegal pointed out, and supermarkets and local grocery stores are, like warehouse clubs, seeing some shoppers purchasing premium products as they enjoy favorite food and drink at home rather than outside.

So, more evidence emerges that a new kind of nesting is setting in among consumers. Restaurants and theaters may suffer, but many consumers won’t bear exclusion from all of life’s little pleasures in the recession. They’ll just find less expensive ways to enjoy them.