At this year’s meeting of the National Retail Federation, Carl Steidtmann of Deloitte Research shared some observations about the impact of the credit crunch on the future behavior of consumers. Among other things, he suggested that consumers will attempt to pay-down their debt load, and that the cash required for this process could have big implications for spending in other areas. (Steidtmann refers to the process as, “de-leveraging.”) Here are the highlights of his remarks, as captured and offered by Advertising Age:
Implications: In our Elm Street conversations, I cite a 2007 story from the Los Angeles Times, in which a couple still owes thousands of dollars on a 2001 SUV, but trades it in on a new truck… paying nothing down, and rolling all of the debt into the new truck payment.
When things like this happen, the consumer is not the only one who mortgages a piece of their future. The auto dealer, too, is effectively rendered incapable of selling to this prospect for years and years to come. Of course, if one dealership were to walk away from this business, another dealership would be there to step in and take it… so competitive forces colluded to perpetuate this “credit over-extension.” Thus, both automobile buyers and sellers share culpability for the circle of credit over-extension.
But that's enough about car dealerships. Think any big-ticket category. What are options to the use of traditional credit? Will we see the return of “collateral” as a precondition of lending? Could your company (or someone in your category) offer layaway as an alternative? Or leasing? Or rental? Is there a way to reward customers who are in a position to pay with cash?
From your current vantage point, perhaps none of these options seems reasonable, because of your historic operating style or infrastructure. But one thing’s for sure: If it’s a good idea and has the potential to be profitable, somebody will do it.
Mike Anderson
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