Bargain hunting becomes the rule of the day

Buying generic cereal and that gift for Fluffy

By Sandra M. Jones and Deanese Williams-Harris | Tribune reporters

May 9, 2008

This article contains corrected material

Tribune reporters

Consumers are trading down but not out.

With the economy straining, shoppers are shying away from home decor, eating out less, switching to grocery store house brands and getting their fashion fix at off-price chains. But they haven't become completely frugal. They're still buying flat-screen TVs for the family room, jeans for their teenagers and sweaters for their dogs.

The nation's biggest retail chains, reporting April sales on Thursday, offered more evidence that consumers are bargain hunting when it comes to food and clothing but are willing to spend when they find a sale or something they really want.

"The higher prices have pushed me out of Saks Fifth Avenue and into Forever 21 to buy my summer dresses," said Janine Bates, 32, of Lincoln Park. "But one thing I cannot skimp on is my Dolce & Gabbana perfume and my Shiseido makeup."

Welcome to the new age of the elastic consumer. With designer goods easily accessible at Target and Costco, and a culture that cheers mixing Prada handbags with H&M dresses, shoppers have more wiggle room than ever on where and when they will cut spending.

"The consumer over the last few years has been very able to trade up and trade down," said Barb Fabing, senior vice president of retail design and strategy at Leo Burnett in Chicago. "It's a balancing act. Consumers have become very savvy at that."

In one of the strongest signs of shifting shopping patterns, sales growth at Wal-Mart Stores Inc., Costco Wholesale Corp. and TJX Cos. in April beat expectations as consumers contending with soaring gas and food prices, as well as tighter credit, looked for bargains at discounters, warehouse clubs and off-price stores.

Food drives Wal-Mart up

Wal-Mart, the world's largest retailer, said sales at U.S. stores open at least a year rose 2.6 percent at its namesake discount stores and climbed 6.6 percent at Sam's Club, both fueled by food sales. Looking to stretch their dollars, customers bought "less expensive protein sources" such as boxed dinners and pasta, while still spending freely on flat-panel TVs (sales more than doubled), video game systems and goods that "humanize" their pets, the Bentonville, Ark.-based company said. Wal-Mart does a brisk business in pet fashion items such as sweaters, pajamas and rainwear for dogs, spokesman John Smiley said.

Terry Davis of Chicago, a member of Costco, was downtown Thursday shopping at Filene's Basement on State Street. He used to shop at Macy's but now only goes to the department store when there are "great sales."

"I don't pay full price for anything, especially for food," Davis said.

Across the board, from fancy eating to fast food, consumers are making fewer restaurant visits and spending less when they do go out, restaurant industry analysts said.

"The restaurant industry is definitely in a slump," said Bob Goldin, executive vice president of food consultant Technomic Inc. "People still go out, but they are much more frugal about how they spend."

Consumers are increasingly skipping desserts or appetizers, and they're buying more value-priced items, said Bonnie Riggs, a restaurant industry analyst at NPD Group.

"They'll use the dollar menu," she said referring to $1 double cheeseburgers and other low-price offerings common at fast-food outlets. "We keep telling [restaurant] operators, 'You have to have a strong value proposition.' "

Cheaper choices

NPD found that compared to a year ago, about 47 percent of "financially challenged" consumers say they're choosing private-label foods over branded items.

"People are making different, cheaper choices," Steve Burd, head of Safeway Inc., which owns the Dominick's grocery chain in Chicago, told stock analysts this month.

Indeed, stores that touted bargains and promotions fared well in April, a move that could take a bite out of profits when retailers report quarterly earnings later this month.

Heavy promotional activity fueled a 24 percent sales increase in April at Saks Fifth Avenue, a stunning gain that will have a "meaningful negative impact" on its first-quarter gross profit margin, the company said.

Nordstrom Inc. got a big boost from its Nordstrom Rack stores, the off-price division where same-store sales rose 7.2 percent compared to a 6.8 percent decline at its full-line stores.

Target, the cheap-chic pioneer, eked out a 3.1 percent same-store sales gain, slightly below its plan, as shoppers kept to basics like underwear and shampoo and avoided such impulse purchases as home decor and seasonal goods. Target's same-store sales for March and April combined fell 1.3 percent.

Among the standout performers was Buckle Inc., a retailer from Kearney, Neb., that caters to teenagers with trendy clothing and denim. Its same-store sales rose 34 percent.

TJX, owner of TJ Maxx and Marshalls, captured the consumer mood swing best when it noted in its April sales report that going into the second quarter the store is expecting to find "great buying opportunities in the marketplace."

The off-price retailer buys merchandise that traditional retailers can't sell and offers it at a discount.

Chari Hurley of Chicago's North Side said she has cut back on trips to Carson Pirie Scott in Lincolnwood and now goes only if she has a coupon.

"Other than that, I frequent discount stores because they have better deals," Hurley said.

Tribune reporter Mike Hughlett contributed to this report.

smjones@tribune.com

dawilliams@tribune.com