Jimmy Choo—well, his iconic Sex-in-the-City shoes anyway—is now on the war-torn economic frontline. So is Stella McCartney. Anna Sui. And, of course, McDonald’s.
The battle is over the New Frugality, the current marketing hot button as the United States gradually emerges from the Great Recession.
Is the New Frugality simply marketing fluff, a way to get consumers to feel good about spending themselves into debt again?
Or does it mark a real change in the zeitgeist? Will consumers start counting pennies and calculating value in a way that shifts the power of the brands that rule the global economy?
Companies from Procter & Gamble to Wall-Mart to Louis Vuitton desperately want to know.
The battle comes to an H&M near you on November 14.
That’s the day the Swedish retailer that has brought its “fashion-at-a-price” strategy to 34 countries launches a line of Jimmy Choo shoes, bags, and clothes. Thanks to the brilliance of H&M’s supply chain, shoes from Carrie Bradshaw’s favorite label will be a whole lot cheaper at H&M than say at an upscale retailer such as Nordstrom. A pair of cheetah print sandalettes at H&M will sell for $129 at H&M versus $795 for the Blythe sandal at Nordstrom. The over-the-knee boots will go for about $300 versus $1500.
Now H&M has collaborated with celebrity designers before Jimmy Choo. Karl Lagerfeld. Stella McCartney. Roberto Cavalli.
But now the Jimmy Choo collection is part of a trend that’s rippled out to include such recent launches as Stella McCartney for Gap Kids and Anna Sui for Target.
The marketing and advertising industries—and Wall Street–have dubbed this trend “The New Frugality.” Consumers are cutting back on aspirational luxury in favor of unstuffing their lives, according to one advertising study. We’re seeing the birth of “reflective consumerism,” a different marketing study reveals. The New Frugality even made it onto the cover of Time back on April 27, 2009.
In the wake of the recession “we’re stripping down and starting over,” Time reported. “Even when prosperity returns, Time found in a survey 61% of consumes will spend less than they did before the Great Recession.
Makes sense doesn’t it, whether you look at the top down numbers produced by economists or simply examine your own spending patterns? To get debt down to something like the levels of the frugal past—like 1990—U.S. households will need to pay down something like $4 trillion in debt. That’s roughly one-quarter of the total annual economic activity in the United States. If you’re family is like most U.S. families, you’ve been eating out less (sales of heat at home pizza are up), taking vacations close to home or turning vacations into “stay-cations, clipping grocery store coupons with a new fervor, and planning to turn your front lawn into a vegetable garden.
The big historical analogy argues in favor of a new frugality too. After all, the Great Depression changed the spending and saving habits of a generation. Shouldn’t the Great Recession do the same?
The new frugality story certainly makes sense to companies such as Procter & Gamble that are repackaging and re-positioning products around the world to appeal to the new desire for value. An ad campaign for Dawn Ultra says, “Unlike some larger bottles of dish liquid that have more water, Dawn Ultra contains 30% more cleaning ingredients. So you pay for more power, not water.”
Even Wal-Mart, which you’d think didn’t need to do anything to hit the new frugality button right on the head, has repositioned its marketing. The company’s new slogan “Save money. Live better” is a deliberate attempt to use the new frugality ethic to appeal to a whole segment of consumers who have never been Wal-Mart shoppers.
But I think the New Frugality paradigm misses two key points.
First, it takes a long, long, long time to change consumer attitudes. The Great Recession is, what two years old. Sure it’s been painful. But two years can’t compare to the more than 10 years of the Great Depression.
Take a look at Japan to see how much punishment consumers can absorb before they begin to change their ways.
Japan suffered through the lost decade of the 1990s when the economy grew by just 1% a year on average. And Japanese consumers kept buying luxury goods.
Things have been even worse this decade. The Japanese economy has grown by just 0.2% a year.
And finally—in the couple of years really, Japanese consumers have stopped buying luxury goods. Louis Vuitton owner LVMH Moet Hennessy Louis Vuitton didn’t scrap a planned Ginza flagship store until 2008. Gianni Versace didn’t announce that it was pulling out of Japan this October. Hermes International reported in October that its sales for the three months that ended in September were down 0.9% in Japan. Gucci sales in Japan fell 30% in that quarter.
If the Great Recession yields to even the less-robust-than-normal recovery that economists are now predicting for 2010, the New Frugality is like to give way to the New Spending as Usual.
Second, the New Frugality is deeply, deeply insulting to the people who never spent like there was no tomorrow during the bubble years.
A Los Angeles Times story about the opening in for the Stella McCartney line that pulled in Hollywood celebrities such as Liv Tyler and Jessica Capshaw drew scathing comments on the newspaper’s comment blog. It’s ridiculous to call a trendy military jacket for $128 accessibly priced, one comment read. Another poster wrote “This clothing is ridiculously over-priced and I am glad my Midwestern sensibilities keep me from buying it.”
For this part of the population, the New Frugality doesn’t mean moving down from Jimmy Choo at $800 to Jimmy Choo at $129. It’s going into McDonald’s and checking to see what’s on the dollar menu. McDonald’s same store sales were up 3.3% in October, and just a few days before Jimmy Choo shoes and bags were set to go on sale at H&M the company announced that it was adding a dollar menu for breakfast to head off a slowdown in morning sales.
From the perspective of people in this part of the economy, the New Frugality looks a lot like the Old Frugality but tougher.
And one of the unrecognized ironies of the New Frugality model is that if the economy is bad enough for long enough to really change consumer behavior, the big growth is going to be in consumers who don’t have the money to shop for Jimmy Choo and Stella McCartney at any price point.
The New Frugality, whether it’s a real trend or just a Madison Avenue marketing slogan, is certainly going to leave us short of the kind of stories that my Depression-era parents told me. You know the kind. They begin “When I was your age…” and end with “We didn’t have…” So far the New Frugality consists of convincing ourselves that we’re saving money, the Republic, and civilization as we know it, by buying our Jimmy Choos at H&M instead of Nordstrom and, on recent sales figures from soft drink companies, of substituting Gatorade and other sports drinks for Pepsi and Coke.
Put that in your anecdote: “Yep, little Bobby, I remember when we were so poor we had to drink Gatorade.”
Hi Jim,
the comparison to the Japanese consumption patterns is very interesting. However, I wonder f there are differences between the US and Japanese cases that may result in different consumption patterns. Did the Japanese have personal debt levels as high as that of Americans, and was Japanese unemployment as high as in the US? If not, we may see Americans be more frugal than their Japanese counterparts.
I’m one of those people Jim is referring to. I was raised frugal and stayed frugal. $129 shoes are ridiculous for me because I’ve always spent $10 to $50 on shoes, period. I am glad, however, of these price reductions when a company sells one pair of shoes for $800 or one handbag for $2000, I don’t see how this helps our economy as compared to 10 pairs of $80 shoes being sold. Right? Just wish ALL of those shoes were made in the U.S.!
What I want to hear from those “in charge” is this: If you have a lot of money (meaning you make over, say, $100,000/ year), or if you were not very affected by this recession (face it, there are many people who have not been affected badly) then PLEASE KEEP SPENDING as usual or GIVE SOME AWAY to help the struggling masses.
I don’t like that no one’s saying this. I don’t like that wealthy people are made to feel they should tighten their belts like the rest of us, because that does the economy no good.
Recently EBay founder Pierre Omidyar and his wife, Pam, donated $50 million to the Hawaii Community Foundation. This should’ve been made a much bigger deal than it was. It was a relatively small story. I only wish someone would donate to our Dept. of Education because presently teachers are taking 17 furlough days because of budget shortfalls.
Meanwhile, my husband and I are considered “low income”, although we have enough saved to invest (or else why would I be reading Jim Jubak?). We have experienced about a 10% reduction in income, but are managing fine because we were raised frugal. And yes, our spending has not changed much: we still go out to eat 2-3 times a week, see movies in theaters, went to Vegas on vacation, etc.
Amazing how far never spending $800 on a pair of shoes can take you.
I think our (US) disposabe income is becoming more important to us and as this awareness increases we will spend more wisely. I have taken over all the household expenitures and am spending half of what my kids were spending
ryanpatrik,
Don’t you worry about ole’ Jim…
p.s: havent you ever noticed his eye glasses? …
Prada…
“Yep, little Bobby, I remember when we were so poor we had to drink Gatorade.”
Gatorade??? How about, “I remember when we were so poor we had to drink TAP WATER.” (That’s what we, an unemployed couple, drink.)
You are right that the New Frugality is deeply insulting to those who haven’t spent like drunken fools the past ten years. Frugal isn’t spending less on your Jimmy Choos. It’s not buying any new shoes at all unless you’re in danger of going barefoot!
Great posts, and great comments.
Isn’t the new frugality going to be getting the most value for your dollar? Not sure about all those clothing brands Jim mentioned in the article, but I think people will spend money on what they perceive as returning “a value” greater than or equal to the money
Then we have two questions to answer.
What are the new values that customers will respect, (pay for)?
Who can deliver these value effeciently and at a profit?
Those answers may tell us what we should be looking at for investments.
The comment “soon as they get cash they will spend it on entertainment” is really an accurate analysis of one type of consumer and value combination. If people value the entertainment, (because it breaks up the dreariness of the great depression, and the following tepid upswing), then yes, entertainment is a “good value” for the money.
If Amazon, Walmart, Sam’s Club, Olive Garden, McDonalds, Kohls, Microsoft, Dell, etc, can prove to buyers that they will get value for the money. (and does not make them feel like losers for shopping there), then they may be on to something. (If Sears and Kmart and H&M can’t do this, then …..)
Again, I really enjoy reading both Jim’s articles and your comments, the combination makes this one of the best investing sites on the web.
Wow, I’m impressed you know about Sex in the City and it’s tie to Jimmy Choo! Totally shatters my impression of who you are but in a good way, really 🙂
Asian people are generally very frugal. If it took multiple decades for the change to appear in Japan, it will take much longer for it to take effect in North America. I completely agree with you there, based purely on the mindset of the people. On another note, it’s good to hear that other people think $128 for a jacket is outrageous. Sometimes, being frugal makes one feel pretty lonely….
My vegetable garden didn’t work out so well. I spent hundreds of dollars setting it up and got 7 tomatoes. That’s about $100/tomato. I think I’ll just go to the farmers market instead.
Fair points and pyschologically accurate IMHO but…before attitudes will matter budgets and balance sheets will count first. With a decade of poor employment (it takes 5%+ real growth to get 2.5% employment growth which is breakeven and our growth outlook is for 2.5%) wages, etc. won’t support much more than the Old Frugality for many for a long time.
Beyond that the damage to Net Worth for 90% of the population is stunning. It was the debt from the Tech and Housing Bubbles that let consumption get so out of control. That likewise will take a long time to even out and is likely to never return and make up the lost ground. Net net – frugal is as frugal does.
… anecdote: “Yep, little Bobby, I remember when we were so poor we had to drink Gatorade.”
A definite keeper …
I’ll use this on the younger guys at work.
Cheers
The Russians.
I build houses for Russian Imigrants with habitat for Humanity. The first thing the Russians do, is plant a garden where their front lawn should be, then in the back yard, they build a green house.
–
I heard on radio tonight that Brazil is getting ready to seperate itself from the US Dollar.
–
Getting to know the Russian may soon come in really handy.
When times are good many Americans extended themselves with large mortgages and high credit card debt. Do you really think those type of people will become frugal? The minute they excess cash, they will spend it on entertainment.
The “New Frugality” reminds me of the rich star buying a Prius to put along side of their Lamborghini, so that they can appear “green” to the public. There is nothing frugal about the “New Frugality”, and once the wind blows in another direction they will follow it.
Nice post, Jim! However, I noticed that spending in Japan is intrinsically different from the one you see in the US.
Adapting to a different life style might be different, but there are a lot of healthy spending habits Americans can borrow from other nations. I am not saying they will benefit the stock market, i.e. a selected number of companies, who are making their extra profits by stimulating us to buy useless staff, but t will definitely be healthy for the whole economy in the long-term run (at least, I think so).
Some people will go right back to spending what they don’t have. What you won’t see is all this refinancing and taking out extra money to “invest” in their house, i.e. new kitchens and bathrooms with granite this and stainless that.
I love this post. It’s blistering! The incessantly hyped New Frugality sure feels temporary to me. The instant the unemployment rate approaches normal levels again, I have a feeling we’ll be back to the Old Spendthriftiness. Perhaps the new savings rate will remain a little bit higher than it used to be–I think a certain wariness of debt may remain–but I doubt it will be enough to keep people away from aspirational luxury entirely. Everyone wants to feel wealthier than they really are.
Interesting post Jim. I am a little worried, however, that you know so much about Jimmie Choo shoes, bags and clothes!