Sign of the times
With the recent signs in the UK of a cooling housing market and increase in the cost of fossil fuels, this might focus households to save more and prepare for retirement.
We can see the effect of consumers spending less in the US, companies such as The Gap have been suffering declining sales since 2004 and a depressing 8% drop in sales during the five-week holiday season this year.
Starbucks is also losing customers to McDonald's Corp. and Dunkin' Donuts, where a cup of coffee may cost $1 less. In the first three months of 2008 its net income fell to $108.7m (£54.7m) down 28% from the same period of 2007.
Alongside this overall decline in consumer spending, there is some hope. It’s not all doom and gloom. We know people are now retiring in the UK at an earlier age (on average 64 years for men and 62 years for women) compared to before.
And life expectancy will go up at State Pension age from 18 years to 22 years by 2020. Further more the State Pension Age will not rise to 68 until 2046.
Total contributions to private (non-state) pensions are estimated to have risen from £37 billion in 1996 to £69 billion in 2004 – these people represent the flip-side of those who’ve lived for today, and establishing their needs and wants will become increasingly important for brands.
Over the next two to five years, we will begin to see the effect across most categories of the contraction in consumer spending and increasing diversion of income to last minute pension provisions.
Those who have prepared well for their retirement are likely to continue their habitual parsimony and to favour “quality” and reliable goods and services, rather than glitz. And for those who didn’t prepare, unglitzy choices will not be optional, but necessary.
For any further information or feedback, please contact: Stephen.Stokes@omd.com
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