EXECUTIVE INSIGHTS                                                                                                        ...
EXECUTIVE INSIGHTS                                                                                                        ...
EXECUTIVE INSIGHTS                                                                                        Figure 2        ...
EXECUTIVE INSIGHTS         Key Takeaways and Implications         U.S. consumer expectations on economic conditions and   ...
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Fall 2012 Consumer Sentiment Survey: Consumer Spending Projections and Other Financial Trends


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Consumer outlook on both the economy and their personal finances are at four-year highs based on L.E.K. Consulting’s fall 2012 Consumer Sentiment Survey (CSS). L.E.K. first launched its semi-annual survey in 2008 to better understand consumers’ projected spending for the next six months as well as their attitudes toward additional financial and economic factors.

The results of our survey to 1,500 households offer important consumer insights for a number of market categories. Report findings include:

-Consumers’ projected spending levels broken out by income demographic
-Personal spending projections in 16 categories including:
-Clothing & apparel
-Dining out
-Home entertainment
-Home renovations
-Personal care and cosmetics
-Consumers’ expectations of economic conditions and their personal finances

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Fall 2012 Consumer Sentiment Survey: Consumer Spending Projections and Other Financial Trends

  1. 1. EXECUTIVE INSIGHTS VOLUME XIV, ISSUE 22 L.E.K. Consumer Sentiment Survey 9: Confidence Remains Steady After a Long Climb Back Consumer attitudes toward the economy and personal finances The perception of economic conditions for the next six have climbed significantly since last fall. Although this news months is still slightly negative overall, but the trend continues is encouraging, the majority of American consumers are still to move upwards. L.E.K. found that only a small portion of on the road to recovery, which is a stark contrast to affluent respondents expect the economy to improve compared to the consumers who continue to lead all other demographics in spring 2012 survey. This is a much smaller shift than the net spending power. 28.8% improvement in percent of consumers who said they expect the economy to improve between the fall 2011 and To assist our clients in developing their strategies to create spring 2012 surveys. value, grow and position themselves effectively for the future, L.E.K. Consulting surveyed 1,500 households to better under- Separately, consumers also expect their personal financial stand consumer attitudes toward the economy, their finances situations to improve – a net positive increase of 12.2% of and projected spending behaviors. This represents L.E.K. Con- respondents since the fall 2011 L.E.K. CSS, with only a nominal sulting’s ninth Consumer Sentiment Survey (CSS), which was upturn reported in the latest findings. Affluent consumers have conducted in September 2012. Initially launched in fall 2008, the most optimistic outlook on their personal finances for the L.E.K.’s semi-annual survey also tracks consumers’ spending next six months, while the lowest-income households are the expectations for the next six months across key industries by least optimistic (see Figure 1). income group. Overall, optimism in both the economy and personal finances Tracking Consumer Sentiment are still pointed in the right direction. A takeaway from the nominal shift in sentiment tracked in the latest L.E.K. survey Consumer outlook on both the economy and their personal shows that a significant segment of the population continues to finances are at four-year highs based on L.E.K. CSS trending feel economic pressures and have a fair amount of uncertainty data. When asked about economic conditions and personal in the factors that impact their confidence and wallets. finances, consumers reported a significant improvement in sentiment in these areas in the spring 2012 report, with only marginal increases reported in the latest L.E.K. CSS report (fall 2012). L.E.K. Consumer Sentiment Survey 9: Confidence Remains Steady After a Long Climb Back was written by François Mallette, a Vice President and Head of L.E.K.’s North American Private Equity Practice; and Jon Weber, a Vice President at L.E.K. Consulting in the Retail and Consumer Products Practices. Please contact us at retail@lek.com for more information.L.E.K. Consulting / Executive Insights LEK.COM
  2. 2. EXECUTIVE INSIGHTS Figure 1 Sentiment on Expected Personal Finances by Household Income – Today vs. Six Months in the Future 40 Better 30 20 Net percent variance >$200K+ 10 $75 – $199K $25 – $49K $50 – $74K 0 <$25K -10 -20 Worse -30 fall 2009 spring 2010 fall 2010 spring 2011 fall 2011 spring 2012 fall 2012 Household income Source:  L.E.K. Consumer Sentiment Survey, September 2012 Six-Month Consumer Spending Forecast While consumer sentiment is improving in some areas, this opti- As households earning greater than $75K constitute ~57% mism is not projected to translate to material spending growth. of total consumer spending, these results point to meaningful For the second consecutive L.E.K. CSS, consumers say that they pockets of expenditure that could be accessed by companies plan to trim their spending during the next six months by 2.6%. who can effectively position their products and services to these When survey response biases are taken into consideration, groups. this magnitude of expected change in spending translates into muted growth similar to what retail sales have experienced in Additionally, although lower income groups as a whole plan the last six months. to cut their spending more than other income demographics, there are pockets of opportunity in the <$25K-$74K income L.E.K. continues to see that growth in overall spending expec- group as approximately one-quarter of respondents expect to tations is aligned with household income, with lower income increase their spending. groups pulling back more on spending than other demograph- ics. Among affluent consumers with household incomes above Consumers who are planning to spend less cite economic un- $200K, 27% plan to increase spending during this time period certainty and price increases in gas and food as primary reasons. while a significant portion of this group expect their spending By contrast, consumers who plan to spend more believe that to stay the same. In the $75K-$199K income demographic, they will be earning more money and are optimistic that the a similar percentage of respondents expect to increase their value of their financial assets and homes will increase. spending, although there is a larger percentage who expect to trim their spending compared to affluent consumers.Page 2 L.E.K. Consulting / Executive Insights Vol. XIV, Issue 22 LEK.COM
  3. 3. EXECUTIVE INSIGHTS Figure 2 Expected Change in Spending Within the Next Six Months by Category and Income Level <$25K $25-$49K $50K–$74K $75K–$199K $200K+ Average percentage change Overall -8 -7 -6 -5 -4 -3 -2 -1 0 +1 +2 +3 +4 change* Groceries 1.6 Home renovations 1.4 Vacations 0.5 Furniture & appliances 0.4 Health & wellness 0.3 Pet products (0.2) Toys, games, arts & crafts (0.3) Personal care, cosmetics (0.5) Fine jewelry & watches (0.8) Footwear (1.6) Clothing & apparel (1.6) Sporting equipment (2.0) Computing, mobile, software (1.8) Home entertainment (1.8) Books, magazines, etc. (2.2) Dining out (2.5) Note: *Overall change calculated on an income weighted basis Aggregate (2.6) Source: L.E.K. Consumer Sentiment Survey, September 2012 Targeted Opportunities in Multiple Categories L.E.K. asked consumers to share their projected spending across 2011 L.E.K. CSS when consumers only planned to increase 16 categories during the next half year. Our findings identify their purchasing on groceries. This fall, there are net positive likely purchasing patterns by income bracket across multiple spending projections in five categories – nearly one-third of sectors (see Figure 2). categories that we track: furniture & appliances, groceries, health & wellness, home renovations and vacations. Notably, According to consumer responses, spending projections for households $200K+ and $75K-$199K have shown the most the next six months have improved significantly since the fall dramatic positive change in projected year-over-year spending.L.E.K. Consulting / Executive Insights LEK.COM
  4. 4. EXECUTIVE INSIGHTS Key Takeaways and Implications U.S. consumer expectations on economic conditions and Winning consumers in this environment requires companies to personal finances have reached four-year highs, which are both deliver products and services that clearly address the specific encouraging signs. Compared to a year ago, consumers may needs of individual market segments. These offerings must have be slightly more willing to spend on discretionary items. a full package of attributes to win – innovation, quality, relevant However, most consumers will continue to look carefully at (to them) value-add attributes, fair pricing, emotional and/or most purchases as they have become experts at recognizing brand appeal – that compel consumers to select them from good value across market categories and when it makes sense among the crowd of viable alternatives. Companies that can for them to spend. In other words, consumers are too smart do this should be able to exploit pockets of opportunity in an (and persistent) these days to pay for something that is just otherwise still challenging environment. “ordinary.” L.E.K. Consulting is a global management For further information contact: International consulting firm that uses deep industry Boston New York Offices: expertise and analytical rigor to help 75 State Street 1133 Sixth Avenue Auckland clients solve their most critical business 19th Floor 29th Floor Bangkok Boston, MA 02109 New York, NY 10036 Beijing problems. Founded nearly 30 years ago, Telephone: 617.951.9500 Telephone: 646.652.1900 London L.E.K. employs more than 1,000 profes- Facsimile: 617.951.9392 Facsimile: 212.582.8505 Melbourne sionals in 20 offices across Europe, the Chicago San Francisco Milan Americas and Asia-Pacific. L.E.K. advises One North Wacker Drive 100 Pine Street Mumbai and supports global companies that 39th Floor Suite 2000 Munich are leaders in their industries – includ- Chicago, IL 60606 San Francisco, CA 94111 New Delhi ing the largest private and public sector Telephone: 312.913.6400 Telephone: 415.676.5500 Paris Facsimile: 312.782.4583 Facsimile: 415.627.9071 organizations, private equity firms and Shanghai emerging entrepreneurial businesses. Los Angeles Singapore L.E.K. helps business leaders consistently 1100 Glendon Avenue Sydney 21st Floor Tokyo make better decisions, deliver improved Los Angeles, CA 90024 Wroclaw business performance and create greater Telephone: 310.209.9800 shareholder returns. Facsimile: 310.209.9125 L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and brands mentioned in this document are properties of their respective owners. © 2012 L.E.K. Consulting LLCPage 4 L.E.K. Consulting / Executive Insights Vol. XIV, Issue 22 LEK.COM