Economic outlook: what influence will consumer confidence have?

October was a disconcerting month south of the border. The U.S. Conference Board reported that consumer confidence had plummeted to a nine-year low, leading economists to speculate about the R-word again.

October was a disconcerting month south of the border. The U.S. Conference Board reported that consumer confidence had plummeted to a nine-year low, leading economists to speculate about the R-word again. Adding insult to injury, the jobless rate inched up to 5.7%, the U.S. manufacturing sector softened, while the Big Three automakers reported a sales drop of at least 30% for that month compared to a year earlier.

All that when Madison Avenue was probably already jittery courtesy of a study by Thurm Marketing in Princeton, N.J., which polled 200 marketing executives and 100 agencies. According to The Wall Street Journal, when asked how much sales could increase if agencies always provided their best work, the mean figure for marketers was only 20.4%, compared to 27.7% last year.

But what does the tumultuousness down south mean for us? Certainly the economy here is on more stable ground; the Conference Board of Canada forecasts it will continue to expand at a rate of 3.5% this year, while worldwide growth is estimated at only 1.6%. Furthermore, John Torella, senior retail consultant for J.C. Williams Group in Toronto, says retail sales in the U.S. year-to-date is up about 3.9% over 2001, while in Canada, that number is significantly higher, at about 6%.

Still, Canada is likely to experience a similar holiday period to the U.S. he says. A recent survey from the Washington, D.C.-based National Retail Federation found that 62.6% of Americans plan to spend the same amount on holiday shopping in 2002 as they did last year, while 29.5% aim to pay less, and only 7.9% will spend more. ‘It’s going to be varied in terms of the results,’ says Torella. ‘Some categories will do better than others.’

He expects any merchandise associated with home and family – like books, music and toys – to sell. ‘The advertising focus will be on value, you’ll see a lot on family,’ he says.

How is the marketing industry reading the various economic reports and forecasts? Strategy surveyed eight players, agencies and marketers alike, from across North America to get their take on consumer confidence and its anticipated impact on advertising and retail.

Andy Macaulay, partner

Zig, Toronto

We are in such a weird position economically speaking that I think the psyche is really fragile. It is such a mixed bag of statistics. As a result, anything that tips it in a negative position [like consumer confidence] is worrying. I don’t think anybody has a great deal of certainty that anything is going in any particular direction. All that does is make everybody act like a turtle – pull in the head and the limbs and sit there for a while and see what happens.

I do believe it will cause people to postpone decisions as much as they possibly can, but we’re getting to a time where everyone will recognize that we need to be making our decisions and getting on with it, although always [with] alternate scenarios in our back pocket.

Nobody is looking at it and saying, ‘Quick, batten down the hatches, we’re dead.’

I think agencies are being understandably cautious. I don’t know if 2002 will set a record for being the smallest amount of new business moving around, but certainly there wasn’t a lot.

Chris Staples, partner

Rethink, Vancouver

I can understand why consumer confidence is dropping in the U.S. but none of those things apply to Canada. We don’t have snipers, bombs and planes crashing into buildings. We don’t have the threat of bearing the brunt of a huge war by ourselves. We don’t have an economy that never bounced back after the recession. I think the mindset down there is very different. If you look at the business fundamentals in Canada, things are really good. After all, we are leading the G8 in growth.

Especially in Vancouver, with the new government in place, there’s a lot of optimism that things are going to get better in the next year. The doom and gloom out here has perhaps been overstated. An agency went under, but it’s not the end of the world. I think Vancouver is fundamentally strong and it’s going to get stronger.

Wendy Evans, retail consultant

Toronto

I think [retailers] are concerned [about consumer confidence]. Our retail numbers have been good, although they’re turning somewhat downwards.

Our numbers may decline, but how far? That’s the big question. There is a chance that we could go into a deflationary cycle, and then we’d see a double dip bear market. [The amount of] impact that [could] have on consumers’ psyche could be extensive.

As we know, a large percentage of the retailers up here are American. Marketing spend is one of the first things, when business goes down, that they would look at to cut. Obviously, that’s going to flow over into this market.

Lori DeCou, director of corporate communications

Best Buy, Vancouver

When we launched the brand and opened the initial stores in the Toronto marketplace [this fall] we were heavy with respect to our media buy. As we move through the holidays and into 2003, you will see our weight become more in line with other retailers of the same status. It will decrease, but it will be of a weight that makes sense for us.

Given that the economy in this country has some very positive indicators, and given that we sell products that we know are on the [holiday] wish list of consumers – for instance, we sell the latest digital technology – we’re very optimistic.

I think obviously entertainment products [will be popular] – not only systems, whether DVD or gaming, but also the software. There’s still a huge market and growth for the digital toys, and we expect to continue to see that this holiday season. Our tagline for holiday is ‘something fun for everyone.’

Nicky Csellak-Claeys, manager – marketing communications

Sony Ericsson Mobile Communications, RTP, North Carolina

The [product] we’re focusing on seems to work despite the economy. We’re focusing on imaging, entertainment and connectivity. [Sales] for our [camera] handset were so good when we launched it that we actually had a shortage. I think if you have a good offering you can get people to gravitate to your product.

We focus very much on experiential marketing. Right now in the U.S. we’re going to nightclubs. There will be video screens, which people can e-mail messages to, and we’ll have people going around the club [introducing] the product.

The choice of experiential marketing is primarily motivated by the excellent fit with our objective, i.e., to demonstrate, educate and excite consumers and to generate word-of-mouth. Of course, in this economy, the lower cost of a viral marketing program is definitely a benefit. But for us, it is not the main driver.

Randy Sears, president

Mitsubishi Canada, Toronto

In October, the [Canadian auto] industry was 10% ahead of last year’s record pace. The economy is suspect, but people are motivated to buy cars and everyone’s scratching their heads wondering why. I think the manufacturers have been working hard to motivate people to visit sales rooms and at least see what’s there.

We [launched in September and] had the best 60 days start of any manufacturer in the last 20 years. I believe that our launch campaign [from L.A.-based Deutsch] was the perfect message for Canada. It began Oct. 7 and [in the week of Nov. 11] we rolled into our advertising for Eclipse and Lancer. I think Canada was ready for this energetic, upbeat approach to advertising. Buying a car is still an emotional purchase.

The old expression – ‘The U.S. sneezes and we catch the cold’ – I don’t think that’s the case any more. There might be a flat spell in 2003, but I expect the industry to remain strong.

Marisa Guerrera, communications manager

Diesel, Montreal

[Diesel jeans] is not [concerned about consumer confidence] at all, especially here in Canada. We seem to be doing really well. It’s a great season, and we have no goods left on the floor.

Our marketing techniques haven’t changed at all because of everything that’s happened. We still have great campaigns. Diesel is still positioned to compete with major brands, and we’re selling jeans at $200 to $250. People don’t seem to have a problem with that. With Diesel, I always say it’s not a brand, it’s a lifestyle and Diesel followers are extremely loyal. That might have something to do with it. And people still have to buy clothes, so they’re just sticking by a company they believe in – especially during times like this.

Gord Sonnenberg, VP marketing

The Bay, Toronto

We’re cautiously optimistic and like many retailers, we’re planning conservatively. Our spend might not be quite as high as some of those years [when the economy was good]. The mix of spend is somewhat different – for example, this year, we’ve done more direct and targeted mail to specific customers.

We’re not planning for strong growth [for fall], but we’re certainly looking to grow our sales. We have a lot to offer [in terms of] some of the exclusive brands we’re carrying.

Our theme for the Christmas season is ‘a magical season.’ That theme will carry through from print to radio and electronic media.

We have more TV right through November and December than we did a year ago.

Value has been an important message all year long, as we have moved to more everyday value price product, and [that] will continue.

David Strickland, SVP marketing

Zellers, Toronto

Obviously, you get concerned [about the economy]. Hearing people talk about their electricity bills [in Ontario] was starting to scare me. There’s uncertainty that exists. We’re just trying to make [marketing] more effective and that means increasing the number of things that we can measure in relation to the response. We’ve done more direct, one-on-one [efforts, but] we’re certainly not spending any less in terms of TV. [In fact Zellers added a last-minute TV toy campaign to their marketing mix.]

We didn’t do [toy spots] last year. [The late decision to advertise toys] was [mostly] a reaction to the competition and to the marketplace. We decided we needed to be in the toy business in a big way, and to make sure consumers knew [about it]. Toys are huge at this time of year. It was [a matter of] looking at the business and saying, ‘We can’t afford not to have this as part of what we’re doing.’

[We] decided to go outside [of AOR Leo Burnett] on a project basis [with Grip for the three toy spots. See Strategy's screening room at strategymag.com]. That had nothing to do with the quality of work from Leo Burnett. Our relationship is solid. We had two weeks to turn around TV on a really tight budget and [felt] we needed to get incremental resources with everything else going on.