The retail sector is now facing yet another challenge, with research suggesting that consumers are saving for retirement rather than buying new products.
According to a survey of 2,502 people by Boston Consulting Group (BCG), nearly 50% answered that they would prefer to save rather than spend their hard-earned money, compared to just 40% last year. The result highlights the level of concern regarding the global economy. Jane Danzingeingr from BCG said “fears about the economy and job security are certainly factors, and these have noticeably increased the past year.”
Danzinger also commented on the respondents’ attitude towards the modern consumer culture, whereby an alarming 54% rejected the culture compared to 49% last year. “They are becoming quite critical of companies pushing sales in an increasingly difficult economic climate”.
The results from the survey are not good news for retailers, which are already struggling to compete with the surging online retail sector. With a wider range of products offered at cheaper prices, consumers are spending more and more of their money online. Needless to say, this trend is applying significant pressure to companies such as Harvey Norman (HVN.AX) and Myer (MYR.AX) to compete and maintain their market shares.
It is also bad news for shopping centre operators such as Westfield (WDC.AX), which heavily rely on revenue from leases for profitability. Should retailers choose to close stores to instead focus on online sales, there will be less demand for floor space in shopping centres which would result in less revenue.
Although the survey results show a bleak outlook for retailers, investors need to remember that consumer sentiment is being weighed down by global economic conditions — such as the slowing down of Chinese growth and the Australian economy — whilst many remain unsure about the safety of their jobs. Should this attitude be reflected in companies’ periodic earnings, investors could be presented with attractive buying opportunities. After all, whilst poor consumer confidence is temporary, it is the long term that yields the greatest returns.
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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.