When will we be happy to pay too much?

This morning on CNBC there was a report on consumer spending and Wal-Mart reporting better than expected earnings.  To my surprise Target is also doing very well.  Target carries nicer/more expensive product that Wal-Mart but cheaper than other higher end stores; it’s sort of a middle-of-the-road store where a consumer doesn’t want to pay top dollar but they don’t want to shop at Wal-Mart either.  Anyway, during a recession, consumers begin using substitutes to save money.  This is a common and predictable shift in consumer thinking whenever the economy turns down.  Instead of shopping at Vons or Ralph’s, consumers will buy from Costco or Sam’s Club.  Instead of shopping at the mall or Macy’s, consumers will go to Wal-Mart or Target. Instead of buying Bounty paper towels or Cascade dishwasher detergent, they’ll buy the generic store brands of those items.  This is all in an effort to save money due to actual financial cutbacks within the family or fear of possible future ones in an unstable economy.

My career started in 2001.  I have ‘grown up’ in my career riding out two recessions and a stock market and housing bubble.  Whether you believe in nurture or nature, I think both sides can agree that the environment around you does affect your decision making process.  Career birth and growth in such a volatile economy has affected me in two ways.

The first is that I have become an amateur economist, something I never thought I would do.  I don’t follow stocks, I’m not a market watcher, I have just spent the past several years getting smart on economic theory (there is a lot of theory that has nothing to with math and much of economic theory can be applied to day to day activities).  As a fun book to read that shows how basic economic theory affects you everyday, I would recommend The Undercover Economist.  It’s like an economic starter book.  If you like it, you’ll want to read more.  For example, on CNBC this morning they reported that the highest growth in sales included canning and storage supplies.  From that you can extrapolate how many Americans are feeling about this economy.  If they are canning food and buying storage components, they are still wary of the future and proceeding with caution.  Basic economic theory lets you see the meaning in many things you may not have noticed before.

The second affect this volatile economy since 2001 has had on me is my appreciation, or disgust, depending on how you look at it, for how much more expensive everything was before.  Because shoppers are switching to substitutes, mainstream higher end retailers must compete with those substitute prices.  I am sure you’ve noticed walking into a store, any store, and you see a sea of signs screaming in bright obnoxious colors, “70% OFF” and “BOGO!”  I’ve seen signs for 80% and 90% off.  All that means to me, is that I was paying 90% MORE before the recession and that I should have gotten one free when I bought one.  It also shows that retailers can run these deep discounts and still operate.

The question now will be, when will you be happy to pay too much?  Eventually, this economy will turn around and those signs will go away.  And when they do, and you realize they have…will your shopping habits have changed or will you gladly pay 90% more all over again?

Categories: Government Failures

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