Economic Uncertainty

There is currently a great deal of conflicting data and speculation on the state of the economy. Housing starts are up while foreclosures rates also remain high. The stock market is up, but unemployment continues to climb. This confusion is creating both a sense of optimism as well continued apprehension about what lies ahead.

Confusing data is also leading to opposing viewpoints and predictions. Home Depot Chief Executive Frank Blake recently told investors that he didn’t expect a year-over-year increase in same-store sales until the second half of 2010. According to the Wall Street Journal, Blake remarked “We remain concerned by the high level of foreclosure activity, which we believe continues to put pressure on the housing markets.”  Target CEO Gregg Steinhafel, however, stated that Target was well positioned to grow profitably.  While it is still early in the back-to-school selling season, Steinhafel said those sales “show promise.”

So what is the reality? To get a better sense of where the economy is headed, let’s focus on the most important thing – consumer behavior. This is the one factor that can truly help us predict future economic activity. Currently, people are not spending money like they used to. They are not shopping, they are not going out. This is the root of the problem.

We have gone from an internet economy to – as I am now defining it – a People economy. You and I (and the remaining 329 million Americans) drive our GDP. Given that we are a People economy, it will take a significant shift in consumer behavior before we can begin to climb out of this economic recession.

For this reason, it is my belief that our economy will not stabilize until fall/winter 2010. If you reflect, you will see that people and things work in threes. Three strikes you’re out. Third time’s the charm, etc. This is no accident. I believe that it will take three holiday seasons (from 2008) before our economy returns to normal. But only time will tell.

What do you think? Do you have any predictions of your own?

Back-to-School Budgets: Not Just For Parents

This year’s back-to-school shopping season will be quite different than years past, thanks to the focus on the economic recession and saving money. For retailers, back-to-school season is considered the second most important shopping season of the year (behind the holidays) and is often used to predict second half sales. Many fear that a tough back-to-school season could indicate an even tougher holiday season.

While retailers are cautiously examining their inventory and sales, consumers are also paying close attention to their numbers. According to the National Retail Federation, four out of five Americans have made some changes to back-to-school plans this year as a result of the downturn. In fact, the NRF predicts that the average family with children in grades K-12 will spend $548.72 on school merchandise, a decline of 7.7% from 2008.

One tactic that many parents are using to deal with a lack of funds is to teach kids how to budget their money while they shop for the essentials. This approach definitely ties in with the sales- and price-focused messages seen from retailers this year. Target is even encouraging parents to make back-to-school shopping “one of the first math lessons of the year” by doing just that. They offer several list-making tools on their website, a Target ‘09 College Facebook page and a 44-page “Smart scholars save dollars” catalog.

I have two children going back to school. Sanaa (11) will start her first year of junior high and Aamir (14) is going into high school. This year, my wife and I developed clear lists and established budgets with the kids. We also selected just one store to buy from (Office Max). Making sure we were prepared with shopping lists, budgets and sticking to one store allowed us to save both time and money. We were able to get everything the kids needed for school and still had money from their budgets left over.

Marketers should take a cue from their customers and use this time to look at their own budgets. They should make sure that their marketing dollars are being spent wisely and on effective programs. The only way to ensure this is to test and learn using analytics. Analysis of current programs and customer behavior can help refine marketing campaigns, increase loyalty and drive profits during this challenging back-to-school season and beyond.