Frugal Consumers Buying More Off-Brand, Off-Price Products

Rivals Target Amazon's Prime Day
Consumers are increasingly looking for better bargains.

Who doesn’t love a bargain?

Well, apparently, certainly not the average consumer, because their buying habits seem to be trending towards the ever more cost-conscious and frugal.

This newfound cost consciousness is reshaping the retail industry in everything from spurring the rise of fast fashion at the expense of mall “anchor stores,” to the increasing popularity of off-brands or store brands in the supermarket, to the shift in the apparel business, to off-price retail outlets over full-priced department stores.

Heck, even dollar stores have been making a comeback of late, fueled in large part by those cost-conscious millennials.

So, what’s going on here? Have consumers just suddenly become very cheap? Are the days of paying extra for “luxury” items or high-end branded items over?

In a way, and to a certain sector of consumers, the answer is yes, and it’s largely due to the way the Great Recession of 2008 changed our economy and spending habits.

A survey of 2,000 U.S. consumers in 2009 by Booz & Company, a global strategy consulting firm owned by PricewaterhouseCoopers, found that the Great Recession brought a “new frugality” to consumers that was only becoming more “entrenched” and would likely “persist even as the economy starts to recover.”

“In short, the Great Recession has forced consumers to shift their behaviors, and many of these new behaviors will stay in place,” according to the 2009 report. “As consumers persist in more frugal behaviors — such as trading down to private labels and buying packaged foods rather than eating out — companies that rely on pre-recession strategies and tactics will find themselves struggling against strong headwinds.”

Flash forward a few years, and you can find those trends pronounced across the entire retail spectrum.

Big-name brand mall stores, like Macy’s and Nordstrom, have been losing market share to their cheaper and more “trendy” fast-fashion competitors, like H&M and Urban Outfitters, over the past several years, while Amazon — the online retailer long-known for its frugality and lower prices — has also done an admirable job cutting into the market and retail space of those more prestigious retailers as well.

You can see this trend, too, in Amazon’s recent announcement that it is moving into the lucrative private-label food market. Late last month, Amazon began to quietly sell its first two private-label products, coffee and baby food, on its website, and reports are that more products will soon be on the way.

It’s also pretty easy to understand why it’s enticing for Amazon to jump into the private-label food market, as those types of items typically carry higher profit margins than their name-branded counterparts, and because of its massive online retailing presence and huge list of subscribers and customer information, Amazon can also save on marketing, branding and packing costs to get those products before the eyes of its users.

And it’s a market that only seems to be expanding, as store-branded items rose to an all-time high of $118.4 billion in U.S. sales in 2015, which was a $2.2 billion increase from the previous year’s sales, according to the Private Label Manufacturers Association.

“As fewer consumers believe that a national brand name absolutely signifies ‘top quality,’ more and more supermarkets and other food product distributors are understanding that they can capitalize on a better profit margin by leveraging their own generic brand to look like a national brand,” DePaul Industries, a Portland, Oregon-based outsourcing organization that processes and manufactures private-label brands, like baby formula, wrote in a blog post on its website in 2014.

You can also see the “new frugality” trend reshaping the apparel retail industry as well, according to a new study by The NPD Group.

Consumers buying items at off-price discounted retailers, like Marshalls or T.J.Maxx, now account for a whooping 75 percent of all apparel purchases across all retail channels, according to the NPD study.

These consumers are “not a particularly loyal group,” as they often shop at multiple off-price retailers at a time, continually searching for the best deals on apparel. More than half of them are 45 or above, according to the study, while millennials only make up 16 percent of this demographic. Off-price retailing is second only to online retailing in terms of growth as well, according to the study.

“Consumers are clearly looking for better deals, and they know, if they shop at an off-price retailer, they will get them,” according to Marshal Cohen, NPD’s chief industry analyst. “Apparel shoppers are finding just what they want at off-price retailers, at the right time and at the right price, and that isn’t always the case with department stores.”

All these examples and figures tell us that consumers are on the hunt for bargains like never before, and retailers and brands would be wise to give that to them if they want to remain competitive.