More Businesses Changed By The New Economy

by John R. SedivycloseAuthor: John R. Sedivy Name: John R. Sedivy
Email: john@capecodbranding.com
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Yesterday in my article How Has The Economy Changed You? I had discussed how Hewlett-Packard (HP) was concerned with the overall change in printing habits and how this was effecting their bottom line. As I suspected, HP is not the only one with such concerns.

This morning in the Times it was reported that the home improvement companies such as Home Depot and Lowes have experienced a change in their overall customer behavior as well. During the old economy sales were driven by major projects, for example a renovated kitchen or bathroom, which are bigger ticket items. With the new economy business has changed, customers are transitioning from larger, more costly projects, to small projects that are either driven by necessity, or provide perceived value at lower cost. Read D.I.Y. Chains Adjust To Smaller Projects for the full story.

Why is this happening? Here are my thoughts:

1. High unemployment and slow business
2. Fear
3. Mistrust
4. Shift in perceived value

First, there is likely a common cause between HP’s woes and that of Home Depot and Lowes. In HP’s situation high unemployment and cost cutting are reducing sales in printer ink. High unemployment and slow business for the self-employed undoubtedly have a negative impact on home improvement sales. But I think there is more here which I will explain in greater detail.

Fear, actions by some businesses during the down economy, and a shift in perceived value are other causes in my opinion. Let’s address fear first. Even with the down economy, there are many who likely can still easily afford the bigger ticket items, however they choose not to. What if they become unemployed, or business dries up? What if they need their savings for necessities such as food or shelter eventually? Although recent news reports are claiming we are climbing out of the recession, many (especially those with financial means) are likely more cautious now and are likely watching rather than listening. Because of course the news sources were the same who were reporting that the housing market would never fall and that a drop in employment could not happen, and of course the misnomer that paper wealth is real wealth – all of which turned out to be false.

Second, the unscrupulous actions of businesses such as some banks and credit card companies has likely added to the issue. Rather than working with consumers through the down economy, many have taken advantage of the situation. With one hand taking large bailouts from the government and with the other fleecing their customers with extremely high fees at a time when they are least able to pay. This, in my opinion, has caused many too be cautious about pulling out credit cards or taking home equity loans to fund such big ticket projects. For more on how consumers are being fleeced by credit card companies read Fleeced by Dick Morris.

Finally, and perhaps most importantly is the perceived shift in value. I remember last fall I was at the salon and I was surprised to hear that business was booming there. The particular salon I go to is a great place, however I kept seeing news reports that the economy was down, spending was down, and many consumers could not afford luxuries. So how could this be?

Well, it appears that many consumers were accustomed to taking long vacations or purchasing big ticket items – during the old economy this was perceived to be of the most value – a reward for hard work. Now that less money was available for these big ticket items, a trip to the salon – even a fairly expensive one – paled in comparison to the cost of a traveling vacation or new vehicle. Suddenly a higher amount of value has been placed on being pampered, especially during a stressful time.

As with my personal experience with the salon, the same is happening with Home Depot and Lowes. Rather than spend a large chunk of money on kitchen and bathroom renovations, consumers are rationing their money by repairing necessities – such as leaking toilets, damaged faucets – and doing these tasks themselves. Those items that are not necessities, such as painting the house or lawn and yard care provide a greater perceived value at lower cost – this provides the consumer with a sense of accomplishment and reward at a much lower cost.

These are the reasons that I believe are contributing to the change in the DIY market – high unemployment or reduced business, fear, lack of credit or an unwillingness to secure credit, and a perceived shift in value. As with the situation with HP and printer ink, it will be interesting to see if there has been a long term shift in behavior or if the shift is only short term and will correct itself with the economy.

Only time will tell.

-John R. Sedivy of Cape Cod Branding

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