Lower-Income, Big Potential

I don’t know about anyone else, but I’m sick of reading about the modern luxury shopper. Pampered, over-indulged and over-examined, luxury shoppers have been given an influence that their numbers really don’t justify. (I admit, it was easy to be taken in, especially in flush times. I followed the retail exploits of the rich and famous as much as anyone.)

But now that the tide has turned, it appears that the country’s fascination with luxury shoppers is waning. And that’s a good thing I think, for a lot of reasons, including the fact that it may shift the spotlight to other groups of consumers, including the lower-income shopper.

The potential of these consumers is revealed in a new report from Information Resources, Inc. (IRI). According to the Chicago-based market intelligence firm, lower-income shoppers (up to $19,900 for one-person households; up to $34,900 for two-plus households) are the fastest-growing income group in the United States and will generate $84 billion in incremental spending during the next decade. They represent an enormous opportunity for retailers—if they understand that less-affluent shoppers are not a homogenous group.

“Lower-income households are one of the hottest opportunities in the marketplace and will provide real growth for those who want to truly learn about the various microsegments and their changing behaviors due to the economy,” said Thom Blishock, IRI’s president of consulting and innovation.

The study, “The Lower-Income II Report: Serving Budget-Constrained Shoppers in a Recessionary Environment,” found that compared with other income groups in today’s economy, budget-constrained, lower-income shoppers are shopping more frequently, but spending less per trip. They are also aggressively shifting spending across channels, retailers, categories and brands.

The report identifies five lower-income microsegments that are positioned to drive a large slice of sales growth for retailers during the downturn—singles and married couples aged 25 to 34; seniors older than 65; households with children; Hispanics; and Asian-Americans—and provides four-year trends of key performance indicators across 60 food, beverage and non-food categories for each group. It finds huge variations in shopping frequency and spending levels as well as in channel dynamics.

The report is a follow-up to a 2007 IRI study, “The Lower-Income Shopper Report: Learning to Better Serve Lower-Income Shoppers.” Together, the two studies dispel many conventional views on lower-income shoppers, including that they are mainly interested in deals, and only buy value brands and other products when they are on sale. Not true, according to IRI research, which reveals that lower-income shoppers are more interested in good values than sale items and are no more likely to purchase sale items than other shoppers. Also, while retail marketing often focuses on large package sizes and volume purchases, much of this is not appealing to the lower-income shopper.

IRI found that retailers and manufacturers have been treating lower-income consumers as a “one-size-fits-all” group by focusing exclusively on price as the only factor for differentiation, with very few investments in product and packaging innovation based on the needs of the less affluent. Among these needs: smaller packaging for shorter buying cycles, and improved variety and selection among value offerings, especially private label.

Lower-income shoppers, of course, have been providing real growth for some time for a handful of retailers, including Aldi and Save-A-Lot (see cover story). With the downturn, maybe more retailers will begin to see the potential.