Wednesday, October 5, 2011

No diaper when the "S" hits the fan (SHTF)

The hard copy Wall Street Journal has run a number of pieces on the newly frugal consumers, not giving up their penny pinching habits as we come out of the recession.  Well first let’s get the mea culpa about the "double" in the dip issue out of the way.
Ann Zimmerman, Wall Street Journal, 4 October 2011

Karen Allen, an eligibility specialist for the Texas Department of Human Services, spends her days determining if a growing pool of applicants qualify for food stamps and Medicaid benefits. She says she and her colleagues feel for their clients because they know first-hand how hard it has become to make ends meet on their own budgets.

The story goes on to describe the ways she has cut her spending.

Ms. Allen is what consumer experts are calling the "forever frugal"—people who cut back on purchases and traded down to cheaper products during the recession and have yet to return to their old shopping patterns.

"We were all curious if the shopping patterns would persist when the recovery came" but the recovery never came, says Nick Hodson, a consumer expert at Booz & Co., a management consulting company. "The consumer is just stagnating."

As an example, the story notes that 75% of consumers now use a shopping list as compared to 45% three years ago at the start of the obvious part of the recession.

The second article drills down into the details of a specific consumer product, disposable diapers.
It starts by noting that typically in a recession spending on tends to stay steady in a recession.  Parents laudably cutback on their own purchases rather than foregoing on child related expenses.  I may complain about selfishness as a group at times, so it is important to note when our selfishness has a selfless character at times. The “selfish” conservatives, and the poor give proportionately more to charities.

Diapers cost a lot of money, the article notes that if you diaper a baby six times a day (?), it will cost about $1,500 per year.  Obviously a big expense for the unemployed.
Hannah Karp, Wall Street Journal, 4 October 2011.
The volume of diapers sold in the U.S. slipped 1% in the four weeks ended Sept. 4 from a year earlier, extending a string of similar or steeper declines stretching back to August 2010... Dollar sales of diapers in the four weeks fell 4% at Huggies maker Kimberly-Clark Corp. Procter & Gamble, maker of Pampers and Luvs, saw dollar sales drop 2.5%. Even generics were down, with sales of private-label diapers slipping 0.5%.
Consumer Edge Research analyst Javier Escalante sees economic pressure behind the data. "This has never happened in this country before—this is a very rare circumstance," says Mr. Escalante, adding that the fact that people are having fewer babies is itself a strong indicator that the economy is influencing parental behavior. "That's a huge decision."
Some of this decline will be due to less babies. In earlier times when population pressures started causing a lot of economic stress, if the society could avoid a general collapse, the birth rate would decline to a point where everyone was comfortable again and the cycle Malthusian cycle could start again.  In 2011 we are no different, economic stress means less babies.
But certainly not all of the drop is from people having less babies.  Baby bottem ointment sales are up 8% and in poorer areas Doctors are siting an increase in the number of cases of diaper rash.
Anjali Rao, a pediatrician at Northwestern Memorial Physicians Group in Chicago, says she has seen a 5% to 10% spike in diaper-rash cases this year. Daniel Taylor, a pediatrician at St. Christopher's Hospital for Children in Philadelphia, says he and his colleagues have heard from a growing number of parents that they must choose between buying diapers and paying for food and heat.
Heading into the third piece, which was the highlight article in the hard copy issue, we get into the general economic issues.  For people whose homes lost value, are heavily in debt, wages (for those earning them) are flat while gasoline and food prices have increased.   To many people there was never much of an uptick to this so called “double dip” recession.
Frontier of Frugality: Retailers Face Reality That Many People Can’t Trade Back Up
Ann Zimmerman, Wall Street Journal, 4 October 2011
Wal-Mart Stores Inc. Chief Executive Mike Duke told analysts in a recent conference call that paycheck-cycle shopping is more pronounced than ever, with shoppers stocking up shortly after getting paid, then moving to smaller product sizes toward the end of the month when they run short of money...
The poor “back-to-school” sales results have given the stores warning of what is to come.  With the holiday season around the corner stores are scaling back their seasonal hiring plans, and trying to launch less expensive products that will appeal to bargain shoppers.   Other stores, including Target, are starting to add discount debit cards.
Target attracts a more affluent customer than Wal-Mart. Households with income of $75,000 or more have largely resumed their pre-recession shopping patterns at Target. But the families making $50,000 to $75,000 are stressed, Mr. Steinhafel says, as they try to keep up with food and gas prices, health insurance premiums and stagnant wages.

"They are trading down, consolidating shopping trips to save on gas and generally not spending a lot on discretionary purchases," Mr. Steinhafel said.

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