Is the New Frugality just hype?

11/11/2009 10:30 am EST


Jim Jubak

Founder and Editor,

Jimmy Choo—well, his iconic Sex-in-the-City shoes anyway—is now on the war-torn economic frontline. So is Stella McCartney. Anna Sui. And, of course, McDonald’s.

The battle is over the New Frugality, the current marketing hot button as the United States gradually emerges from the Great Recession.

Is the New Frugality simply marketing fluff, a way to get consumers to feel good about spending themselves into debt again?

Or does it mark a real change in the zeitgeist? Will consumers start counting pennies and calculating value in a way that shifts the power of the brands that rule the global economy?

Companies from Procter & Gamble to Wall-Mart to Louis Vuitton desperately want to know.

The battle comes to an H&M near you on November 14.

That’s the day the Swedish retailer that has brought its “fashion-at-a-price” strategy to 34 countries launches a line of Jimmy Choo shoes, bags, and clothes. Thanks to the brilliance of H&M’s supply chain, shoes from Carrie Bradshaw’s favorite label will be a whole lot cheaper at H&M than say at an upscale retailer such as Nordstrom. A pair of cheetah print sandalettes at H&M will sell for $129 at H&M versus $795 for the Blythe sandal at Nordstrom. The over-the-knee boots will go for about $300 versus $1500.

Now H&M has collaborated with celebrity designers before Jimmy Choo. Karl Lagerfeld. Stella McCartney. Roberto Cavalli.

But now the Jimmy Choo collection is part of a trend that’s rippled out to include such recent launches as Stella McCartney for Gap Kids and Anna Sui for Target.

The marketing and advertising industries—and Wall Street--have dubbed this trend “The New Frugality.”  Consumers are cutting back on aspirational luxury in favor of unstuffing their lives, according to one advertising study. We’re seeing the birth of “reflective consumerism,” a different marketing study reveals. The New Frugality even made it onto the cover of Time back on April 27, 2009.

In the wake of the recession “we’re stripping down and starting over,” Time reported. “Even when prosperity returns, Time found in a survey 61% of consumes will spend less than they did before the Great Recession.

Makes sense doesn’t it, whether you look at the top down numbers produced by economists or simply examine your own spending patterns? To get debt down to something like the levels of the frugal past—like 1990—U.S. households will need to pay down something like $4 trillion in debt. That’s roughly one-quarter of the total annual economic activity in the United States. If you’re family is like most U.S. families, you’ve been eating out less (sales of heat at home pizza are up), taking vacations close to home or turning vacations into “stay-cations, clipping grocery store coupons with a new fervor, and planning to turn your front lawn into a vegetable garden.

The big historical analogy argues in favor of a new frugality too. After all, the Great Depression changed the spending and saving habits of a generation. Shouldn’t the Great Recession do the same?

The new frugality story certainly makes sense to companies such as Procter & Gamble that are repackaging and re-positioning products around the world to appeal to the new desire for value. An ad campaign for Dawn Ultra says, “Unlike some larger bottles of dish liquid that have more water, Dawn Ultra contains 30% more cleaning ingredients. So you pay for more power, not water."

Even Wal-Mart, which you’d think didn’t need to do anything to hit the new frugality button right on the head, has repositioned its marketing. The company’s new slogan “Save money. Live better” is a deliberate attempt to use the new frugality ethic to appeal to a whole segment of consumers who have never been Wal-Mart shoppers.

But I think the New Frugality paradigm misses two key points.

First, it takes a long, long, long time to change consumer attitudes. The Great Recession is, what two years old. Sure it’s been painful. But two years can’t compare to the more than 10 years of the Great Depression.  

Take a look at Japan to see how much punishment consumers can absorb before they begin to change their ways.

Japan suffered through the lost decade of the 1990s when the economy grew by just 1% a year on average. And Japanese consumers kept buying luxury goods.

Things have been even worse this decade. The Japanese economy has grown by just 0.2% a year.

And finally—in the couple of years really, Japanese consumers have stopped buying luxury goods. Louis Vuitton owner LVMH Moet Hennessy Louis Vuitton didn’t scrap a planned Ginza flagship store until 2008. Gianni Versace didn’t announce that it was pulling out of Japan this October. Hermes International reported in October that its sales for the three months that ended in September were down 0.9% in Japan. Gucci sales in Japan fell 30% in that quarter.

If the Great Recession yields to even the less-robust-than-normal recovery that economists are now predicting for 2010, the New Frugality is like to give way to the New Spending as Usual.

Second, the New Frugality is deeply, deeply insulting to the people who never spent like there was no tomorrow during the bubble years.

A Los Angeles Times story about the opening in for the Stella McCartney line that pulled in Hollywood celebrities such as Liv Tyler and Jessica Capshaw drew scathing comments on the newspaper’s comment blog. It’s ridiculous to call a trendy military jacket for $128 accessibly priced, one comment read. Another poster wrote “This clothing is ridiculously over-priced and I am glad my Midwestern sensibilities keep me from buying it.”

For this part of the population, the New Frugality doesn’t mean moving down from Jimmy Choo at $800 to Jimmy Choo at $129. It’s going into McDonald’s and checking to see what’s on the dollar menu. McDonald’s same store sales were up 3.3% in October, and just a few days before Jimmy Choo shoes and bags were set to go on sale at H&M the company announced that it was adding a dollar menu for breakfast to head off a slowdown in morning sales.

From the perspective of people in this part of the economy, the New Frugality looks a lot like the Old Frugality but tougher.

And one of the unrecognized ironies of the New Frugality model is that if the economy is bad enough for long enough to really change consumer behavior, the big growth is going to be in consumers who don’t have the money to shop for Jimmy Choo and Stella McCartney at any price point.

The New Frugality, whether it’s a real trend or just a Madison Avenue marketing slogan, is certainly going to leave us short of the kind of stories that my Depression-era parents told me. You know the kind. They begin “When I was your age…” and end with “We didn’t have…” So far the New Frugality consists of convincing ourselves that we’re saving money, the Republic, and civilization as we know it, by buying our Jimmy Choos at H&M instead of Nordstrom and, on recent sales figures from soft drink companies, of substituting Gatorade and other sports drinks for Pepsi and Coke.

Put that in your anecdote: “Yep, little Bobby, I remember when we were so poor we had to drink Gatorade.”

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