The press and media are rampant with articles that, in one form or another, talk about or refer to a recovery from the Great Recession. There will not be a recovery. I’ll say it again. There will not be a recovery.
The word recovery means getting back to the way things were. Webster defines recovery as “a regaining of something lost or stolen.” The press continually implies that the economy will recover at some point in time to its pre-recession condition.
Our company has access to dozens of studies and research about the impact that the Great Recession has had on consumers. They all agree this has not been a typical recession where consumers and businesses quickly forget the turndown and return to their previous ways. The Great Recession has fundamentally changed consumers, their values, behaviors and their spending, some economists think for as long as 30 years. And businesses have been forced to learn how to do more with less, so there is no reason for them to return to their previous business practices.
Not to bore you with statistics, but here are some important ones to understand. Since the beginning of the recession,
• Consumers have been continually deleveraging by decreasing both their credit card and long-term debt.
• Their savings rate has gone from zero to 8%.
• They have lost wealth, both in home equity and investments.
• Their investments are paying less due to low interest rates.
• The unemployment rate hovers near 10%, twice normal.
• The underemployed rate is 17%, meaning those people are earning less.
• Small business owners are struggling to have their businesses survive, many taking reduced or no salaries.
• There are 1.2 million discouraged workers who have dropped out of the workforce, are no longer earning wages and don’t even show up in the unemployment statistics.
You can do the math anyway you want, but when you add up the money no longer available for spending due to increased savings, less borrowing, low interest rates, the unemployed and underemployed, business owners earning less and the discouraged who are no longer earning, we are talking about serious money and a big chunk taken out of consumer spending and the economy.
But what matters even more is that no matter how much unemployment drops and small businesses become more profitable, consumer spending will never return to pre-recession levels. You can call it by many different names, the new frugality, the smarties, the strategic consumer, the grounded consumer, but the bottom line is that the Great Recession has brought about a permanent shift in consumer values, behaviors and spending patterns. The days of conspicuous consumption are dead. We have moved from mindless to mindful consumption. There will not be a recovery in the sense of returning to the good old economy. This is the new normal. And consumer spending is going to improve very slowly, basically by population growth, inflation and increases in employment. Even if we to get back to 5% unemployment, consumers will continue to exhibit significantly reduced and a shift in spending compared to pre-recession times.
So for the press out there, stop creating the illusion there will be a recovery and let’s start talking about the new order of things. In many respects it is actually a positive shift over the past with decreased emphasis on status and owing things and increased importance on meaningful shared experiences, family, friends, community, society and the environment. Values now define consumerism in the post-recession economy. Americans as well as people in many other developed economies are now seeking simpler and more meaningful lives. The world may ultimately well end up a better place thanks to the Great Recession.
This of course is not good news for shopping centers and retailers, especially since we were overstored before the recession. About one-fifth of all retail space is now vacant and will need to be repurposed. For businesses that offer experiences and either charge for them or can profit by offering them for free, such as the Apple Stores, the new normal is opportunity. It is opportunity for businesses that reinvent themselves to align with the new consumer and their newfound values. The consumer pie may be smaller overall, but the pie has a changed recipe with different ingredients. There are plenty of slices for the taking.