Most Consumers Still Struggling to Afford Basics

Despite rising consumer confidence and strong February same-store sales, don't celebrate the return of the consumer just yet. The findings of a recent study by WSL/Strategic Retail provide some sobering observations.

Michael Blann | Photodisc | Getty ImagesConsumers are coming back, but they have limits, according to a recent study by WSL/Strategic Retail.

Most consumers still feel as though they are struggling to afford the basic necessities.

“Every retailer wants to think ‘Everything I sell is worth it! Shoppers will love it’, but the hard reality is 52 percent Americans feel they barely have enough to afford the basics," said Candace Corlett, president of WSL/Strategic Retail.

Corlett's comments are based on a survey WSL/Strategic Retail conducted of 1,950 consumers in December regarding their shopping habits.

Consumers have moved past the fear that was seen in the firm's 2010 How America Shops survey, Corlett said. However, they are returning to stores, but with limits.

Feeling the Strain

And it’s not just the lower-income consumers feeling the strain. Three groups are experiencing higher rates of financial struggle: those with incomes between $100,000 and $150,000, those aged 18 to 34 years old, and women.

According to this year's “How America Shops” survey, it now takes an income of more than $150,000 to be able to afford the basics, some extras and to save too.

As for the once-coveted 18- to 34-year-old market, it is now the demographic struggling the most when it comes to buying power.

In addition, about 75 percent of women say it’s important to get the lowest price on everything they buy, up 12 percent points from 2008. In this group, 68 percent are using coupons regularly and 45 percent are only buying items on sale.

Since the financial crisis, retailers have employed heavy promotions, perhaps unintentionally cementing these shopping behaviors.

“Retailers have trained women to never pay full price and take pride in being a smart shopper,” Corlett said. “It’s a real struggle to sell anyone anything at full price.”

Because price has become central for decision making, some brand names will suffer, particularly with women shoppers, Corlett said. Some 67 percent of women said that trusted brands are not worth paying for, and they are pausing to consider whether it’s a smart use of their money.

“It’s an income issue, but it’s also a value issue," she said. "We have lost that mindset of we have to buy, buy, buy, buy. . .we’ve built in a lot of push back. Retail sales will be up, but people aren’t buying everything they want, they are buying what they need.”

As a result, retailers need to ask themselves: can they afford to take price increases if they are selling to a shopper that can barely afford the basics?

"Frivolous is out,” she said.

Questions? Comments? Email us at document.write("");document.write("consumernation"+"@"+"cnbc.com");document.write('');. Follow Christina Cheddar Berk on Twitter @ccheddarberk.

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How British aid can still help India

AppId is over the quota
AppId is over the quota
1 March 2012 Last updated at 14:28 GMT By David Loyn BBC News, Bihar The use of British aid money in India, with its rapidly growing economy and ambitious space programme, has critics in both countries. But in the state of Bihar, a carefully targeted aid project is successfully reducing corruption, and improving the lives of some of the poorest people in the world.

When they set up recently as advisers in Bihar state offices, British aid officials faced a rather immediate problem.

One of their targets was increasing the number of toilets and safe washing facilities out in the countryside - but they had not expected to need to provide them for their own staff first.

The government system had been so hollowed out during the previous corrupt administration that the most basic of facilities had gone.

Now signs of change are everywhere.

A courtyard has become a graveyard of manual typewriters, lying rusting and broken among discarded wooden cupboards, desks and filing cabinets.

Every piece of furniture and old Remington typewriter has a number painted in white on it, denoting it as state property, some dating back from the 1930s.

In one ministry, there were so few people actually working that the British advisers hired street sweepers to do basic administrative jobs.

They needed to start from scratch as if coming to a land recovering from catastrophe - although Bihar had not faced a natural disaster or conflict, but corruption.

Its previous administration was infamous for theft - stealing votes, and misdirecting government subsidies.

Bihar's problems were similar to those faced by many frail, post-conflict countries - lacking even the systems to spend money allocated to it from central government.

It is this capacity that Britain hopes to improve so that Bihar can access money from Delhi that otherwise is going to waste.

On a busy corner in Patna, I watched as people queued up to apply for certificates of income, caste and land title.

British aid money was behind this project too, helping citizens to access state services without having to pay middlemen as they did in the past.

This British scheme is even funding an Indian call centre. There was brisk business when I went to listen, as people phoned in to ask for the name of the individual official concerned with their case.

Failure to act within a certain period of time has led to civil servants being fined. Others have gone to jail for trying to continue the corrupt ways of the past.

This is a long way from the traditional image of aid as a handout, or payment for health, education or housing.

And the case that Britain retains its large aid budget to build the capacity of the Indian state may be a hard one to make to someone in the British public sector who has lost their job in the cuts caused by austerity at home.

But no-one could doubt the scale of the need.

If Bihar were a country, its per capita income would be the third lowest in the world. Only two countries in Africa would be below it.

In a slum of some 50 or so houses, wedged between a main road and a railway, backing onto a green fetid swamp full of mosquito larvae, Parbhatti Devi told me that she had lived here all her life.

She had lost all her fingers and toes to leprosy - and what she had, she earned from begging.

Bihar's economy is growing fast, but many still live in poverty

Wires snaked through the makeshift roof of her hut, with improvised attachments to overhead cables, lethal in the monsoon rain. She had no safe drinking water nor access to a toilet.

Some Indian politicians and diplomats do not like Britain's large aid programme because this is not the image of a land with global middle class aspirations they want to project. They live as if in another country from the lepers by the railway tracks.

Bihar has shaken off its past and is now the least corrupt state in India and from a low base its economy is growing at more than 14%. Given that, should it not now take care of itself?

The answer from the most senior civil servant in the state was simple. He told me that development would have come, but far more slowly without the British technical expertise that has changed the way they do things.

He said that millions would be lifted out of poverty far sooner because of the British help.

We met in his office in the Secretariat building that was the seat of British colonial power here until 1947.

On his wall hung a painting of the huge conical brick structure that still stands at the west of the city, built by the British to store rice after a devastating famine in the 1770s.

In another century, Britain has a relationship of quite a different kind here.

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Run on European Banks Still Possible: Economist

A run on European banks that would create systemic risks is still possible if a major financial institution gets into trouble, Brad Bourland, chief economist and head of proprietary investment at Jadwa Investment, warned in a CNBC interview.

Keith Brofsky | Photodisc | Getty ImagesAsked where a Lehman type of event would happen if it were to happen again, Bourland said: "A major European bank. A commercial bank. The German and the French are capable of taking care of their banks but last week S&P downgraded 26 Italian banks."

"So if there is a series of failures in one of the weaker countries of a banking sector — in Europe you don’t have the same deposit guarantee insurance universally like you do in the US, so you never had a run on a US bank, people lining up to get deposits out. But if you have several banks, or a significant bank fail and you will have a run," he added.

Speaking less than a week before the launch of the European Central Bank’s second long term refinancing operation (LTRO), he suggested the safety net for the banks was not enough.

Markets are anxiously anticipating the size of the ECB’s second LTRO, with estimates ranging from 500 billion euros ($665 million) to 1 trillion euros.

Despite this uncertainty, Bourland, who manages a $400 million proprietary portfolio, said he was still buying risk, “Just not in Europe. We like high growth, emerging markets. We like private equity and real estate.”

But for now, buying into the Greek market is one step too far, he said.

“I would love to buy Greek real estates,” Bourland said, “Or some Greek assets, but not at German prices. So wait until it breaks. Maybe Greece leaves the euro, maybe it has a dramatic internal devaluation, something has to happen before it gets interesting for external investors.”

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