By Mintel, Special for USDR
The improving economy has left Americans with a little extra money in their pockets, encouraging many consumers to increase spending across categories, with a particular penchant to splurge on entertainment activities, according to Mintel’s latest research. This comes to the detriment of the clothing, footwear and accessories market as consumers are encouraged by the trend of spending on experiences over material goods. Consumers are holding on to a budget–conscious mindset, persisting after the recession and reinforced by retailer and manufacturer promotional activity, as seen in the household care and apparel markets, keeping sales growth in check.
The vacations/tourism (+3.9%) and leisure/entertainment (+2.8%) markets have grown steadily 2014-15, reaching estimated$233 billion and $365.5 billion respectively in 2015. Consumers report spending more in these categories in recent years*, with a 10 percentage point increase in the share of consumers spending more on vacations and a 12 percentage point increase in the share of those spending more on leisure and entertainment, driven by an increase in consumers’ discretionary income, a growing confidence in their financial situation and a desire to spend on experiential categories over tangible goods. One result of the increased focus on experiential spending could be slowed growth in the clothing, footwear and accessories market as the category has seen decelerating growth since 2011 reaching $431.9 billion in 2015.
While beauty and personal care consumers typically take a functional approach toward purchases, resulting in two thirds (67%) saying they spend about the same compared to previous years, a notable 17% of consumers report spending more in 2015, reflecting a willingness to spend on products with added benefits. This is balanced by consumers also cutting costs on basics such as sun protection and shaving products by trading down to lower-priced offerings, all adding up to moderate growth of 2.9% 2014-2015, with sales reaching $124.3 billion in 2015.
Much of the success seen in discretionary categories is due to the fact that Americans are more confident in their financial situations** compared to years past. More than two in five (44%) Americans describe their financial situations as “healthy” in 2016, compared to 37% in 2015 and 33% in 2013, indicating that improvements in the economy are being felt at a household level.
“As the economy continues to improve, and Americans settle into ‘healthy’ financial situations, our research shows that consumers are interested in spending discretionary income on vacations, leisure and entertainment experiences,” said Dana Macke, Senior Lifestyles and Leisure Analyst at Mintel. “However, some Americans are still struggling to find a balanced approach to spending. In an attempt to spend prudently while still enjoying whatever extra they have, consumers are trading down in categories like household care and seeking out lower priced options for basic beauty and personal care needs, while allowing themselves modest luxuries like a nice dinner out.”
While the economic woes of the Great Recession are fading into the background, a budget-shopper mentality has been hard to shake. In an attempt to strike a balance between prudent spending and still enjoying their hard earned dollars, consumers are meeting their financial obligations by saving (14%) and paying down debt (29%), while allowing themselves modest luxuries. Continuing the trend of spending on experiential categories, consumers choose dining out (38%), entertainment (25%) and gifts for the family (23%) as the most popular ways to spend their extra cash after all the bills are paid.
“A relatively strong jobs market, low gas prices and an overall strengthening economy have made many Americans feel more confident in their financial situation. However, it appears that some may be waiting for the other shoe to drop, demonstrated by cautious spending and steady rates of saving. In 2016, deal-seeking behaviors prevail, and brands must continue to provide the utmost value to their consumers. In an environment where consumers have a little more discretionary income on their hands, we find that value isn’t measured by the price per pound but by the strength of the brand name and the quality of the product,” concluded Macke.
These findings come as Mintel launches its flagship American Lifestyles report, which tracks spending across major consumer markets. Overall, Mintel research reveals that total consumer expenditure in the US increased 3.9% over 2014. Highlights from the 2016 report include:
As the economy improves, bar tabs go up
Dollar sales of in-home alcoholic drinks are estimated to post a second straight year of gains hitting $117.5 billion in 2015, following a dip in 2013. However, gains are tempered as confident consumers appear willing to indulge out of home: 13% of consumers say they will spend more on on-premise alcoholic drinks in 2016. Mintel research indicates that this is the highest percentage of consumers sharing this sentiment in the past four years. Sales of alcohol on-premise grew 4% from 2014-15 to reach an estimated value of $97.6 billion.
Health concerns have consumers running to protein and sugar alternatives
The in-home food market grew 15% from 2010-15, maintaining steady growth and reaching estimated sales of $581.0 billion in 2015. Perceived spending on in-home food remained stable in 2015, with 58% of consumers saying they are spending the same as they have in years prior. However, with price increases impacting the red meat category, more and more consumers are turning to poultry and meat alternatives. What’s more, health concerns related to obesity, diabetes and heart disease are negatively impacting sales of sugar and sweeteners (except for honey which is perceived as more natural) and consumers remain confused: 66% of consumers agree there are so many types of sweeteners it’s hard to know the difference between them.
Innovation in water, coffee and tea justify higher price tags
The non-alcoholic drink market has seen steady growth for the past five years, reaching an estimated $116.4 billion in 2015. The market is experiencing slow growth and share loss from leading categories including carbonated soft drinks (CSDs) and juice/juice drinks, making room for smaller, up-and-coming categories like bottled water and ready-to-drink (RTD) coffee and tea. This growth is supported by the fact that smaller categories hit on consumer-led trends surrounding health and wellness and new product innovation featuring natural and high-quality ingredients, sophisticated flavors and premiumization – all of which come with a higher price tag.
Natural haircare trend reveals a bright spot for beauty and personal care market
A reliance on beauty and personal care staples has resulted in slow but steady market growth of 17% between 2010-15, reaching estimated sales of $124.3 billion. While most consumers are spending the same amount on beauty purchases in 2016 (67%) as they have in the past (vs 65% in 2013), Mintel research indicates that some consumers are beginning to shift away from lower-priced options and are spending more for products with added benefits, as 16% of beauty retailing consumers purchase products to upgrade their existing collections. This is especially true of grooming staples like haircare as natural hairstyles are trending, driving consumers to seek healthy-looking hair and boosting sales of conditioners as well as products touting smoothing and moisturizing claims.
Recession mentality keeps household care products at arm’s length
The household care products market has experienced only minimal growth in recent years, rising just 3% 2010-15 to an estimated $47 billion. A budget–conscious mindset persists long after the recession, keeping sales growth in check. Household care consumers balance their continued focus on economizing with strong interest in products that offer greater convenience, cleaning performance, and safety, as 47% of household care consumers say easy to dispense is a top purchase driver, along with safe (43%) and easy (31%) to use.
Watches have accessories all wound up
The total US clothing, footwear and accessories market has enjoyed slow but steady year-over-year improvement over the past few years, reaching an estimated $431.9 billion in 2015. Accessories saw a particularly good year as three in five (60%) consumers purchased jewelry or watches 2014-2015, and smartwatches in particular are poised to bolster the entire category. While only 6% of adults bought a smartwatch in the year ending June 2015, 21% are highly interested in them, with early adopters and younger men pinpointed as key targets: 37% of men 18-34 express interest in smartwatches. Nearly one third of the same group wears watches to make a fashion statement.
“Bleisure” travel offers the best of both worlds
The vacations and tourism market has grown steadily for the past five years, estimated at $233 billion in 2015. The market increased a total of 27% from 2010-2015. In 2016, consumers are more likely to indicate they have spent more on vacations over the past year compared to previous years: 64% report increased or stable spending versus 43% in 2013. Consumers’ desire to spend in this market, encouraged by the continuing trend of spending on experiential categories, is tempered by an unwillingness to take off time from work. Working remotely and the trend of “bleisure” travel will help consumers find balance: 30% of business travelers have added extra days to business travel for their own personal enjoyment.
DIY bathroom renovations keep linens market fresh
The home and garden market experienced steady growth, increasing 20% between 2010 and 2015 to reach an estimated $451.1 billion, due in no small part to the bathroom linens segment which saw the strongest 2015 gains. With half (49%) of consumers reporting a willingness to splurge, bathroom linens is a key area for increased spending as consumer confidence grows.
Streaming entertainment creates a nation of bingers
A highly discretionary category, the leisure and entertainment market has been steadily increasing in recent years and is projected to continue to grow in the near future. In 2015 it is valued at $365.5 billion. Consumers are most likely to say they are spending about the same on leisure and entertainment this year compared with prior years (47%), with increased spending over time (21% spending more in 2016 vs 9% in 2013). Mintel research indicates that the leisure and entertainment market has benefited from consumers (especially younger generations) prioritizing having experiences over acquiring material goods. What’s more, leisure and entertainment is a key category for bingeing with streaming entertainment a key contributor to the rise of the bingeing trend.
FinTech disrupts financial services to the delight of consumers
Consumer expenditures on financial services jumped in 2015 to reach an estimated $605.5 billion, reflecting in part consumers’ increased participation in the strong equities market, as well as increased bank fees and declines in the number of free-checking accounts. The main financial priority for most consumers today is paying off bills/debt (59%) and saving for retirement (47%). Disruptive technology is helping consumers achieve both as online banks, peer-to-peer (P2P) lenders and robo-advisers increase in popularity. The P2P lending market is growing fast, as an increasing number of these companies are making funds available more quickly and easily than traditional lenders. In fact, one in four (24%) consumers is comfortable borrowing money from a P2P lender.
**Financial situations in 2016: “healthy” refers to having money left at the end of the month for some luxuries or to add to savings
Mintel’s flagship report, American Lifestyles 2016, includes a comprehensive look at 18 US consumer markets, including: Food (in-home), Dining Out, Alcoholic Drinks (in and out of home), Non-Alcoholic Drinks, Beauty and Personal Care, OTC and Pharmaceuticals, Household Care, Clothing, Footwear and Accessories, Technology and Communications, Vacations and Tourism, Leisure and Entertainment, Home and Garden, Transportation, Personal Finance, Housing, Healthcare, and Miscellaneous (eg education services, pet food, care and accessories, toys, games and hobbies, legal services).