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June Consumer Outlook: Summer's Onset Brings Boost in Spending Prospects

COLUMBUS, June 2, 2005 - Retail Forward's Future Spending Index improved to 99.1 in June from 96.6 last month, indicating consumers are in a better spending mood as the summer season approaches. (Figure 1)

"Despite fears that consumers are finally throwing in the towel, this month's results show that consumers' desire to shop remains intact," said Steve Spiwak, an economist with Retail Forward. "Job growth, home buying and the recent stock market run up are providing a solid foundation for near-term spending prospects."

Father's Day spending should contribute somewhat to the pickup in overall spending plans, driven mostly by stronger spending on Dad among Up Market households. Cards, clothes and consumer electronics top the list of Father's Day gifts.

Other ShopperScape™ results show that the soaring housing market is stoking home improvement project spending, with the do-it-yourself crowd driving much of that spending. The Home Depot and Lowe's are the primary beneficiaries of the home improvement binge, but don't count out Wal-Mart among Down Market do-it-yourselfers.

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.

• 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.

Father's Day Spending Plans Mostly Static

This month's ShopperScapeTM indicates that Down and Middle Market fathers can expect their children to spend about the same amount on Father's Day gifts this year as they did last year. However, more Up Market households intend to boost their Father's Day spending this year than reduce it.

• Overall, nearly half (49%) of all primary household shoppers plan to spend about the same amount on Father's Day this year compared with last year (Figure 2). An equal number of shoppers plan to spend more (9%) as plan to spend less (9%). Meanwhile, a third of all households do not plan to spend anything.
  
• About half of Middle Market shoppers plan to spend the same amount on gifts this Father's Day. This figure is somewhat higher for Up Market consumers (58%) and lower for Down Market shoppers (41%).
  
• Twelve percent of Up Market consumers plan to spend more this year, compared to 9% who plan to spend less. In contrast, the percentage of both Down and Middle Market households who plan to spend more is nearly equal to the percentage who plan to spend less.
  
• Down Market consumers are most likely to have no Father's Day spending plans this year. In fact, a combined 53% of this segment plans to spend less (7%) or nothing (46%) compared to last year.

Cards and Clothes Are Popular Purchases for Dad

While the majority of shoppers who are buying Father's Day gifts in all income segments plan to purchase the ever-popular greeting card for Father's Day, notable percentages also plan to make purchases in other categories this year. Clothing/shoe purchases should prove to be popular gifts this year, while big-ticket consumer electronics and sporting goods are also near the top of the list.

• Thirty percent of total Father's Day shoppers plan to purchase clothing/shoes for Dad (Figure 3). Look for shoppers to spend an average of $72 on this category. Approximately one quarter of both the Down Market and Middle Market segments and more than one third (36%) of Up Market shoppers plan to spend their Father's Day dollars on clothing/shoes.
  
• Spending will be the highest in the consumer electronic category. Fourteen percent of Father's Day shoppers plan to buy a new high-tech gadget for Dad with an average ticket of $149.
  
• Sporting goods also rank high on the list of planned purchases for Father's Day, with 12% of all shoppers saying they will buy this category for an average of $80 per household. Up Market consumers (15%) are most likely to plan to purchase gifts in this category.
  
• Down Market consumers are slightly more likely to purchase fragrances/cologne this year than Middle and Up Market shoppers, although they intend to spend less than half the amount Up Market consumers plan to spend.

Honing in on Home Improvement

The home-buying boom of recent years has many homeowners engaging in home improvement projects to spruce up their abodes. And encouraged by the rising number of home decorating shows on cable TV, many are electing to do the work themselves.

• Forty-two percent of households initiated a home improvement project in the past year (Figure 4). Projects continue to be most popular among Up Market consumers, likely because of rising home values and incomes. More than half of this segment initiated a home improvement project within the past 12 months.
  
• Regardless of market segment, it is most common for shoppers to purchase the materials and have the work done by non-professionals. This is especially true among Middle Market households-more than half of these consumers bought the materials and either completed the project themselves or had it completed by other non-professionals.
  
• Slightly fewer than a fifth of all shoppers (18%) said they hired a contractor to purchase the materials and complete the work. The percentage of shoppers who had the work done for them was significantly higher among Up Market households, 26% of whom hired a contractor. Only 9% of Down Market consumers favored this more expensive option.

Two Contenders Dominate the Battle for Home Improvement Dollars

Because of their broad selections and strong service, the competition remains focused between The Home Depot and Lowe's when it comes to purchasing home improvement project materials. Due to its much larger store base, The Home Depot has an edge over Lowe's. Wal-Mart is a distant third in terms of store preference, though it captures a large percentage of Down Market project spending.

• Overall, 42% of shoppers bought the majority of their home improvement project materials at The Home Depot (Figure 5). Nearly half of all Up Market consumers (49%) purchased materials at The Home Depot along with 41% of Middle Market Consumers and 26% of Down Market consumers.
  
• Lowe's was second to The Home Depot, with a little more than one quarter (26%) of shoppers purchasing the majority of home improvement project materials at this retailer. Preference for Lowe's was more evenly distributed across income segments than for The Home Depot.
  
• While just 8% of all households employed Wal-Mart for home improvement project shopping, the world's biggest retailer carries a significant presence among its core Down Market consumers. A whopping 17% of all Down Market consumers purchased the majority of materials for their most recent home improvement project from this low-price retailer.