Consumer Cutbacks: Look Who's Benefiting

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So where are consumers shopping for these basics? According the federation's 2008 Holiday Consumer Intentions and Actions Survey conducted by BIGresearch, 40% of shoppers said sales/promotions are the largest factor when determining where to shop. On Nov. 13, Wal-Mart Stores (WMT) reported a 10% increase in third-quarter earnings, but cut its profit outlook because of the troubled economy and the dollar's strength. The retailer said its renewed focus on low prices and holiday price bargains is attracting financially squeezed shoppers. As consumers downgrade and hunt for deals, variety/discount stores, such as 99 Cents Only Stores (NDN) and Dollar General, are also seeing sales rise (BusinessWeek.com, 11/5/08). Competitors Dollar Tree (DLTR) and Family Dollar Stores (FDO) have seen double-digit earnings growth the past two quarters, benefiting their share prices.

Happy Hour Customers

While the restaurant business as a whole is suffering, some value-oriented franchises are managing relatively well. Jeremy Schumacher, who manages an Applebee's in Columbus, Ohio, says that for the past three months his restaurant has been pulling in an average of 200 more customers and $4,000 more per week. "People are very happy with happy hour," when drinks and appetizer prices are half off. Schumacher says he thinks people from higher-income brackets who did not previously patronize his restaurant are now coming in. "We're very reasonable," he says, "and people are starting to figure that out."

Consumers are finding still other ways to save, such as switching from name-brand products to generics (BusinessWeek, 10/30/08). U.S. sales of private-label goods rose 10% in the year ended June 28, according to Nielsen, compared with a meager 4% gain for national brands. And consumers lacking cash flow or credit can once again start putting purchases on layaway at such places as Burlington Coat Factory, which saw its percentage of layaway sales rise from 4.6% in August to 5.3% in October. Kmart, a subsidiary of Sears (SHLD), which has offered layaway for years, has rolled out a new advertisement pushing the plan.

Consumers have varying levels of comfort as they adjust to an era of budget trimming. Stiff, for one, doesn't mind cutting back a little on electronics, but he's not happy when the downturn infringes on his social life. "I'm a single guy, but the dating scene gets expensive," he says. "For most women, a movie and McDonald's isn't a quality date."

Herbst is a reporter for BusinessWeek in New York.