The current recession has seen consumers shifting within categories the infamous trading down effect. Dinner-house restaurant customers are shifting to fast food, fast-food customers to retail stores, and high-end, mainstream retail shoppers to retailers that offer significant value propositions.
Even recognizing that people are trading down is difficult for retailers and manufacturers to deal with, and much response to such trends is counterproductive. Brand images, painstakingly established over decades or centuries, are suddenly blurred by a panic to reposition.
The real opportunity in changing times lies not in observing the obvious the waves on the ocean; it lies in understanding the subterranean currents, the deep causes of the surface anomalies.
This recession hit like a bomb. Consumers, realizing a lifetime of value creation was suddenly lost as mortgages exceeded the values of homes and 401Ks withered, shifted gears. From a spending mode, they pivoted to a debt-reduction and asset-enhancement mode.
In a macroeconomic sense, this was a big problem. In what John Maynard Keynes called the paradox of thrift in his Treatise on Money in 1930, what is good for an individual or family saving, not spending is a disaster for the economy as a whole if everyone does it at the same time. One reason all the stimulus doesnt work is that its a trickle sent to battle a tidal wave. If every American family wants to save itself into solvency and every family should and the government shouldnt want to stop them even a trillion dollars spent wisely will not be able to overcome a tsunami of consumer savings.
Still, the spending strike was inherently a temporary position. At some point, consumers would feel theyd reduced debt sufficiently and would change spending habits but when and how was a mystery.
The bigger question was what would be the long-range impact of the sudden wealth collapse. Some theorized we would see a neo-Depression mentality in which people hoarded money out of fear. Were not out of the recession yet, but the suffering does not seem so widespread and the prospects not so hopeless as to create that type of response.
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