Consumer Confidence Low, but Indulgent Spending on the Rise?

Leading surveys suggest that Consumer Confidence is at the lowest point in several months.  The Conference Board indicated that September 2010 consumer confidence was the lowest since early 2010, and Reuters/University of Michigan reported declines in consumer confidence in both September and October 2010. America’s Research Group’s September consumer survey reported that consumers were more pessimistic about holiday spending than any time on record.  But are the consumers really telling us the truth?

Pessimism in Vogue

Unemployment continues at stubbornly high levels, and nearly 1/3 of homes sold in September were in the foreclosure process – it’s clear many consumers are still suffering.  However, with the stock market rebounding and housing prices beginning to recover in some geographies, not all consumers are hurting.   But with so many facing difficult times, being optimistic seems out of step.  Therefore, we brag about shopping on strict budgets and exchange stories about our own financial hardships that would have been taboo pre-2008.

Consumer Actions Speak Louder than Words

Despite that zeitgeist of frugality, the September Commerce Department sales stats released Friday were strong: 0.7% sequential increase over August 2010 and an impressive 7.7% increase over September 2009.  Those results were consistent with the September same store sales results which also exceeded expectations and matched the August results.  The Commerce Department showed particular strength in “nonstore retailers” (i.e. online retail) and electronics and appliances.  The chain store highlights were in the department and luxury store categories, with some select specialty apparel concepts (Victoria’s Secret) also showing strength.

“Every Once in a While, a Girl Has to Indulge Herself”- Carrie Bradshaw, Sex in the City

What do these strong categories have in common?   Simply put, they are indulgences.  Tiffany, Coach, LVMH Group and Burberry have all reported strong sales; indicating the return of the brand loyal consumer.  Mobile devices and accessories are attracting the gadget-oriented consumer, driving many of the consumer electronics sales.  Many of the luxury brands have reduced inventories, so these goods are selling at full price.  Further, Apple is having difficulty keeping its production at a level to meet demand, which indicates that sales could have been even stronger.

Holiday Cheer?

These trends bode well for the holidays.  While BDO’s recent survey of retail CFO’s found that they projected a 1.9% increase in Q3/Q4 2010 same store sales, there may be some upside to that prediction.  First, the 2010 holiday season will have one more shopping day than in 2009 (days between Thanksgiving and Christmas).  That will account for a 1% increase alone.  The strong momentum from August/September sales could be expected to add a further gain to the 2010 holiday results.  But will the newly self-indulgent consumer be equally indulgent when shopping for others this holiday season?