More signs of consumer discretionary spending slowdown, online feeling the impact November 12, 2008Posted by jeremyliew in Ecommerce, recession.
Last month I wondered which companies might prosper in an advertising recession:
Companies that buy advertising (rather than selling it) will find that they can now buy advertising more cheaply than previously.
Ecommerce companies, subscription businesses, lead gen businesses and online game companies are all buyers of online advertising. In the last advertising slowdown, companies like Expedia, Zappos, Quin Street, Lending Tree, Lower My Bills, Netflix, Classmates.com and Ancestry.com were all able to grow to over $100M in revenue by taking advantage of cheap media.
Will history repeat itself in this recession? It is hard to know. Certainly lower CPMs can lead to lower customer acquisition costs if all else is equal. But the difference between this recession and the last one is consumer confidence, which is markedly lower today than in the 2000-2003 time period…
Certainly, consumers are deferring “considered purchases” including homes, cars and other big ticket items. Etailers selling “necessities” that cannot be deferred, such as diapers or business cards, will do fine. The question is what will happen to the demand for small ticket consumer discretionary spending. Starbucks might be considered a proxy for this sort of spending.
So far it isn’t looking good. Comscore notes:
A review of monthly retail e-commerce growth rates helps to further depict the slowdown in the U.S. retail economy. So far this year, retail e-commerce growth rates have fallen from levels of 18 to 20 percent observed during Q4 of 2007 to a growth rate of only 6 percent in Q3 2008. Since April, we have seen five consecutive months of declining growth rates. September’s 5-percent growth rate is the lowest recorded by comScore since it began tracking e-commerce sales in 2001.
In addition to reporting this data from comScore’s passively-observed behavioral panel, comScore surveyed more than 1,000 consumers in October 2008 to gather attitudes on the economy. The study revealed that the majority of consumers are fearful of the future, with 82 percent stating they are more afraid about the economic future than ever before. Additionally, only a quarter (26 percent) of respondents said they believe the economy will be ‘better’ a year from now.
Online entertainment sales (music, movies and videos) were the worst affected, down 29% year on year in q3. These is the most discretionary of discretionary spending.
And as for Starbucks, the WSJ notes:
Starbucks Corp. said it will open fewer stores internationally than planned and offered a more pessimistic earnings forecast for the coming year as the coffee chain said fiscal fourth-quarter earnings plummeted 97%… Same-store sales, or those at locations open at least a year, declined 8% in the U.S.
It doesn’t look like we will spend our way out of this recession