ETF Trends
ETF Trends

The changing face of consumerism in both North America and Europe has markets and economists stumped, as creative advertising measures have not helped drum up sales, leaving shares and exchange traded funds (ETFs) deflated.

Both retailers and manufacturers in Europe and North America are perplexed by the slump in retail sales. Even when companies have gotten creative with their advertising and promotions, results have been few. This had led economists to ponder what longer-term changes in consumer behavior have been prompted by the recession, reports The Economist.

Here are some reasons why the trend toward thrift may not change once the economy steps up:

  • In North America and Europe, housing and stock market bubbles have burst and the damage has taken unemployment to new levels; home values, retirement, wages and the job market have seen dramatic losses. The threat to wages will fade as growth picks up, the damage done to housing and other assets will linger.
  • Inmar, an American firm that processes discount coupons, says that redemptions in America were 17% higher in the first quarter of 2009 than in the same period last year. This points to the closing of wallets in many households and is evidence of the bargain-hunting that has become commonplace.
  • The banks that are left standing once the smoke clears will be much more scrupulous with their credit and lending practices. Many people will still be intent on rebuilding their nest eggs, which is reflected in sharply rising rates of saving.
  • Sociologists believe that people will not assume affluence is common. Now, many people no longer seem consumed by the desire to consume; instead, they are planning to live within their means, and there has been a backlash against bling. Going into debt to buy “things” will not be commonplace anymore.
  • In general, business will not be trusted right away. Consumers have been affected by a wave of financial scandals, such as the Madoff scandal. Big business will have to earn back its reputation.
  • Interest in things such as green products and healthy foods will continue to grow in a post-crisis world, but customers will be less willing to pay a premium for them, and will demand more value for money when they do.
  • Social media will grow as consumers test the quality and intelligence of firms through social networking. Social media make it harder for brands to pull the wool over consumers’ eyes, but they also offer companies a powerful new channel through which to promote their wares and test new products and pricing strategies.

Could this mean we’ll be seeing more bargain- and value-focused companies as components of retail ETFs? Already, some deal-oriented companies are holdings in SPDR S&P Retail (XRT), including Carmax (KMX), Expedia (EXPE), Family Dollar Stores (FDO) and Supervalu (SVU).

  • SPDR S&P Retail (XRT): up 15.2% year -to-date; up 28.2% for one month

For full disclosure, some of Tom Lydon’s clients own shares of XRT.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.