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Welcome to the ShopperScape™ Newsletter June 2005 PREDICTIONS Prepare for Mom and the kids to be looking to dress up Dad for Father's Day or at least buy him some new underwear and socks. Look for the sun to shine on June spending compared to May especially among Middle Market shoppers. Expect home improvement projects to continue to occupy consumers' spare time and resources but anticipate that more consumers will join the do-it-for-me set to free up their weekends for fun and leisure. Anticipate that consumers will be less enthusiastic about spending plans this year compared to last year's banner year especially in the women's apparel arena. HOT OFF THE PRESS Dressing Dad Father's Day is on the minds of many consumers this year, with two-thirds (66%) of shoppers planning to purchase a gift for Dad this year. Consumers in all segments will focus their spending this Father's Day on greeting cards and clothing/shoes (Figure 1). Consumer electronics, sporting goods and fragrances/cologne also represent popular gifts for Dad this June.   Figure 1. How much do you plan to spend on the following types of gifts for Father's Day this year?   All Shoppers Down Market Middle Market Up Market   Plan to Purchase* Average Amount** Plan to Purchase Average Amount Plan to Purchase Average Amount Plan to Purchase Average Amount Greeting Cards 74% $8 69% $8 71% $6 79% $9 Clothing/shoes   30% $72 23% $42 27% $52 36% $75 Consumer electronics   14% $149 9% $101 13% $104 17% $179 Sporting goods   12% $80 9% $30 10% $56 15% $97 Fragrances/cologne 11% $75 13% $44 11% $44 11% $100 Candy   8% $22 7% $27 7% $8 8% $26 Flowers   3% $58 5% $9 2% $13 3% $117 Jewelry   3% $138 5% $56 3% $98 3% $119 Other (not including spending on services like dining out, movies, hotels, vacations, etc.) 40% $87 37% $59 39% $53 43% $116  *Percent planning to spend in category  **Average dollar amount planned to spend Source: Retail Forward ShopperScape™. Mother's Day vs. Father's Day Spending: How does it compare? While the ever-popular greeting card that shoppers bought their mothers last month continues to represent the most popular item on Father's Day shopping lists, notable differences can be found between other category purchases (Figure 2). Of no surprise, very few dads can expect an FTD delivery on their doorstep. Fewer dads than moms will be tempted with candy. On the other hand, more than twice as many Father's Day shoppers plan to purchase clothing/shoes for Dad compared to those planning the same purchase for Mom. Father's Day gives Mom and kids an excuse to put some shine on Dad's wardrobe even if it's just a new golf shirt. Additionally, 14% of Father's Day shoppers plan to purchase consumer electronics for the techno-father in their lives, while only 4% of Mother's Day shoppers planned to make a purchase in this category. Figure 2. Father's Day vs. Mother's Day Spending   Total Father's Day Shoppers Total Mother's Day Shoppers   Plan to Purchase* Average Amount** Plan to Purchase* Average Amount** Greeting Cards 74% $8 80% $8 Clothing/shoes   30% $72 14% $82 Consumer electronics   14% $149 4% $209 Sporting goods   12% $80 NA NA Fragrances/cologne 11% $75 7% $58 Candy   8% $22 12% $17 Flowers   3% $58 38% $37 Fine Jewelry (gold, silver, other precious metals/stones) NA NA 7% $178 Costume Jewelry NA NA 4% $51 Jewelry   3% $138 NA NA Other (not including spending on services like dining out, movies, hotels, vacations, etc.) 40% $87 36% $75                                    Source: Retail Forward ShopperScape™ April and May 2005. CONSUMER SPENDING OUTLOOK Better Middle Market Moods Lead Index Higher. Middle Market households, which account for nearly half of overall consumer spending, drove June spending prospects higher. Spending plans among Down Market households slipped modestly, while plans among Up Market households held nearly steady. (Figure 3) The June Future Spending Index for Middle Market households (incomes between $22,500 and $75,000) rose to 100.1 from 93.9 in May. This income segment is much more optimistic about the job situation and income growth. Moreover, the recent drop in mortgage rates has bolstered home buying and refinancing activity for this income cohort, providing added confidence to spend. Heightened optimism about jobs and incomes along with an increase in investment worth balanced greater debt concerns and a falloff in home buying for Up Market households (incomes greater than $75,000). As a result, the index for this income group was essentially unchanged at 97.2 in June. The index for Down Market households (incomes less than $22,500) moderated a bit to 101.1 in June compared with 102.3 the month before. The volatile job market recovery is taking a disproportionate toll on this segment, though a jump in refinancing activity and investments cushioned the June falloff. The Retail Forward Future Spending Index combines households' current assessments of key drivers of spending across income segments, including the job situation, incomes, investments, debt levels, home buying, and seasonal factors to produce a forward-looking indicator of spending for the coming month. SHOPPER INSIGHTS Home Buying Boosts Home Improvement Project Plans The past few years surge in home buying and increased interest in feathering the nest with style have propelled interest in home improvement projects. Nearly half of all shoppers have initiated a home improvement project within the past 12 months. As income levels increase so do the percentages of shoppers making home improvements (Figure 4). Half of all shoppers making home improvements buy the materials themselves and have the work completed by non-professionals, which could include themselves, the handy relative or even friends with aspirations to become Ty Pennington. As part of the growing DIFM (do-it-for-me) population, 18% of all shoppers opt to avoid purchasing the materials or doing the work themselves and instead hire a contractor. The least popular approach to home improvement projects is for the shopper to purchase the materials and have the store arrange the installation. That being said, both Lowe's and The Home Depot report high rates of growth in their installation businesses. Look for this option to become more popular in the future. Figure 4. Home Improvement Projects   All Shoppers Down Market Middle Market Up Market Initiated a home improvement project in past 12 months Yes 42% 29% 42% 53%           Approach used for most recent home improvement project I bought the materials and the work was done by non-professionals 50% 49% 53% 47% A contractor bought the materials and did the work 18% 9% 15% 26% I bought the materials and hired a contractor to do the work 6% 2% 7% 8% I bought the materials and the store arranged installation 3% 1% 4% 4% Other 3% 5% 3% 2% Don't Know/Not Sure/Not applicable 20% 34% 18% 12%                                 Source: Retail Forward ShopperScape™. The Battle for Home Improvement Dollars The Home Depot and Lowe's continue to battle it out for the majority of shoppers' home improvement dollars. However, Wal-Mart emerges as an important player in the choice set of Down Market shoppers (Figure 5). Market leader The Home Depot captures 42% of shoppers' share of preference for home improvement materials while Lowe's garners 26%. Both of the giants' customer segments skew Middle to Up Market. While large percentages of Down Market consumers shop at The Home Depot and Lowe's for home improvement project materials, 17% favor Wal-Mart/Wal-Mart Supercenter for home improvement supplies. More likely to be renters, Down Market consumers are less likely to view their projects as an investment. Figure 5. Home Improvement Shopping   All Shoppers Down Market Middle Market Up Market Where majority of materials for most recent home improvement project were purchased The Home Depot 42% 26% 41% 49% Lowe's 26% 21% 27% 27% Wal-Mart/Wal-Mart Supercenter 8% 17% 9% 1% Menards 5% 8% 5% 3% Lumberyard/Building Center 5% 9% 5% 3% Hardware store 4% 9% 2% 3% Paint/Wallpaper store 3% 1% 3% 5% Flooring/Carpeting store 1% 2% 1% 3% Lawn & garden store 1% 1% 1% 1% Sears 0% 0% 1% 0% Online shopping site 0% 0% 0% 1% Catalog 0% 0% 0% 0% Other 5% 5% 5% 5%                                   Source: Retail Forward ShopperScape™. Customer Service that Counts Shoppers turn to home improvement centers to solve their home improvement problems. When it comes to customer service at home improvement retailers, consumers feel there is some room for improvement in specific areas (Figure 6). Top issues include: Better floor coverage More knowledgeable people on the floor (both product and project knowledge) Improved checkout speed Figure 6. In which of the following ways could stores that sell home improvement products provide a better level of customer service?   All Shoppers Down Market Middle Market Up Market Have enough salespeople available to help me whenever needed on the sales floor 69% 64% 68% 71% Train salespeople to have a greater knowledge of home improvement products 61% 58% 61% 61% Have more salespeople checking out customers 48% 47% 47% 50% Train salespeople to have a greater knowledge of home improvement projects 47% 44% 48% 46%                      Source: Retail Forward ShopperScape™. Look for more information on home improvement shopping in upcoming RFI homegoods publications. PURCHASING PLANS Plans for June Category Purchasing Down from Last Year. Planned purchases in categories this June are static to down compared to last year, which represented a banner year for buying. Categories in which planned purchases remain the same compared to last year include cookware (pots, pans, bakeware, etc.), men's underwear, undershirts, socks, MP3 player or iPod's and everyday tableware (plates, bowls, glasses, flatware). Perhaps Dad is going to benefit from new underwear or an iPod for Father's Day. Every other category shows some decrease in plans to purchase from last year to this year (Figure 7). Figure 7. Staying the Same   Plan to Purchase in Next 4 Weeks June 2005 Plan to Purchase Next 4 Weeks in June 2004 Difference in Plan to Purchase June 2004 - June 2005 Cookware (pots, pans, bakeware, etc.) 10% 10% 0 Men's underwear, undershirts, socks 15% 15% 0 MP3 Player or iPod 5% 5% 0 Everyday tableware (plates, bowls, glasses, flatware) 8% 8% 0 Source: Retail Forward ShopperScape™. Summer Fever Many categories show signs of weakness in comparison to last year but the ones shown below represent the biggest declines in plans to purchase. Pre-recorded video tapes or DVD's is the category that will see the weakest spending in June this year compared to last year. Plans for buying paint and auto supplies also decline significantly, which may be reflective of a larger trend toward the do-it-for-me consumer who is losing an appetite for spending the weekend doing a "second job." Finally, plans to purchase several women's categories are down from last year (Figure 8). Figure 8. Going Down   Plan to Purchase in Next 4 Weeks June 2005 Plan to Purchase Next 4 Weeks in June 2004 Difference in Plan to Purchase June 2004 - June 2005 Pre-recorded video tapes or DVDs 21% 30% -9 Paint 16% 22% -6 Women's casual tops (knit shirts, sweaters, casual blouses, etc.) 23% 28% -5 Auto supplies 13% 17% -4 Women's dress clothing (suits, dress pants/skirts, blazers, dresses, etc.) 14% 18% -4 Other women's casual bottoms (non-denim casual pants, shorts, etc.) 21% 25% -4 Source: Retail Forward ShopperScape™. POINT OF VIEW Challenges keeping Wal-Mart awake at night "Shoppers around the globe want Wal-Mart. Shoppers in the United States are doing more of their shopping at Wal-Mart. Yet Wal-Mart continues to post lackluster results. Findings from Retail Forward's ShopperScape™ suggest some challenges that might be keeping Wal-Mart executives awake at night-e.g., converting more food shoppers to higher-margin general merchandise shoppers, a key to the supercenter model; offering more goods that appeal to a broader shopper base that isn't always bargain-shopping; and waiting out high prices at the pump, which are impacting core low- to middle-income Wal-Mart shoppers, or alternatively, more aggressively targeting additional shopper segments." Sandy Skrovan, Vice President and Manager of Wal-Mart World™ For more information on Wal-Mart World™ Shopper Update published June 2005 or the Retail Forward Intelligence System™ call Kathy Clarke at 614-355-4009 or email her at kclarke@retailfoward.com. What's Retail Forward ShopperScape™? Retail Forward ShopperScape™ focuses on today's consumers and their shopping behaviors. Retail Forward ShopperScape™ has been fielded since November 2003 to a sample of 4,000 consumers each month. The survey gathers timely, up-to-date information about where consumers shop and what they buy. Retail Forward ShopperScape™ is administered through TNS/NFO's online household panel, weighted based to be representative of U.S. households. For more information, call Kathy Clarke at 614-355-4009 or visit http://www.retailforward.com and select ShopperScape™ under Product & Services in the navigation bar located at the top of the home page to view sample reports and learn more about how to access ShopperScape™ information. 700 Ackerman Road Suite 600 Columbus, Ohio 43202 Voice: 614 355 4000 Fax: 614 355 4059 http://www.retailforward.com To subscribe to the Monthly ShopperScape Newsletter™ or other Retail Forward newsletters, click here. If you would like to stop receiving the ShopperScape™ Monthly newsletter, please edit your content preferences here.