'Trading Up' Spending in U.S. Crosses $700 Billion, as Consumers See Premium Products as Salve for Life's Challenges, According to New Boston Consulting Group (BCG) Research
"Trading Up" and "Trading Down" Consumer Markets Continue to Grow, While
CHICAGO, May 22 /PRNewswire/ -- Consumer spending in the U.S. on premium, "trading up" products and services hit $720 billion in 2006, up from $670 billion in 2005, according to new market size research from The Boston Consulting Group (BCG). That means that "trading up" spending accounted for 21% of the $3.5 trillion Americans spent in 2006 on homes and home renovation; transportation; food and beverages; travel and entertainment; personal items; dining out; home goods, and apparel and other fashion items. In 2005, "trading up" spending amounted to 20% of what consumers spent; in 2004 it was only 18%. Meanwhile, bargain hunting - the "trading down" market - also expanded. It leapt to $1.2 trillion in 2006, from $1.1 trillion in 2005. "Trading down" accounted for 33% of discretionary spending last year, compared with 32% in 2005 and 31% in 2004. DEATH IN THE MIDDLE Accordingly, discretionary spending on traditional "middle market" products and services continued to spiral down. The "middle" accounted for 46% of spending in 2006, compared with 48% in 2005 and 51% in 2004. Category growth rates varied. The overall spending on "Trade Up" housing and housing products was flat last year, the first time in the last six years. "Americans have always been smart spenders, and they're getting smarter. They know how to identify the premium products that will meet their emotional needs and offset the challenges of life. To afford those products, the ones that mean the most to them, they bargain hunt relentlessly in other categories - and find low-cost, quality items and services," said consumer economy expert and BCG Senior Partner Michael J. Silverstein, author of the bestselling Treasure Hunt: Inside the Mind of the New Consumer (Portfolio, May 2006) and Trading Up: Why Consumers Want New Luxury Goods - and How Companies Create Them (Portfolio, 2004). He added, "Many companies are meeting, and even driving, the challenge from consumers. The best of these companies have created a regular cycle of innovation for premium-priced, 'trading up' products or, on the other side, learned how to relentlessly drive costs down and still offer products that are good and satisfying. Other firms, however, remain mired in the middle, a shrinking market." BCG'S "TRADING UP TOP 100" AND "TRADING DOWN TOP 100" DRAMATICALLY OUTPERFORM S&P 500 BCG has tracked two groups of retailers - the "BCG Trading Up Top 10" and the "BCG Trading Down Top 10." The "Trading Up Top 10" realized a 359% increase in market capitalization between the end of 1996 and the end of 2006 which is a compound annual growth rate (CAGR) of 16.5%. And the "Trading Down Top 10" achieved a 320% jump in market capitalization during that period which translates into a CAGR of 15.4%. That compares with only a 131% increase in market capitalization for the S&P 500 as a whole for the period or a 8.8% CAGR. The "Trading Up Top 10" is comprised of Coach, Nordstrom, Limited Brands, Inc., Whole Foods Market Inc., Tiffany & Co., Neiman Marcus, Brinker International, Williams-Sonoma, Saks and Cheesecake Factory. The market cap for that group jumped to $68.4 billion at the end of last year from $14.9 billion at the end of 1996. The "Trading Down Top 10" is comprised of Wal-Mart, Home Depot, Target, Lowe's, Costco, Kohl's Corp., Staples, TXJ Companies, Dollar General and Family Dollar. The market cap for that group jumped to $459.1 billion at the end of 2006 from $109.2 billion at the end of 1996. About The Boston Consulting Group Since its founding in 1963, The Boston Consulting Group has focused on helping clients achieve competitive advantage. Our firm believes that best practices or benchmarks are rarely enough to create lasting value and that positive change requires new insight into economics and markets and the organizational capabilities to chart and deliver on winning strategies. We consider every assignment to be a unique set of opportunities and constraints for which no standard solution will be adequate. BCG has 61 offices in 36 countries and serves companies in all industries and markets. For further information, please visit our Web site at www.bcg.com . 2006 TRADING UP MARKET CROSSES $700 BILLION IN U.S. Estimate Continued Category Growth of 5-10% Estimate of 2006 Trading Up Category Market ($B) Travel and entertainment (hotels, cruises, airlines, intl. travel) 160 Homes and home renovations 125 Transportation (new and pre-owned cars and light trucks/SUVs) 95 Dining out (quick service and full service) 85 Food and beverage (food, coffee, wine, liquor, other) 80 Home goods (furniture, appliances, home electronics) 70 Personal (products, spas, cosmetic surgery, private schooling) 60 Apparel and fashion (clothing and footwear) 45 Total 720 2006 U.S. TRADING DOWN MARKET ~ $1.2 TRILLION Estimate of 2006 Trading Up Category Market ($B) Homes and home renovations 260 Dining out (quick service and full service) 175 Travel and entertainment (hotels, cruises, airlines, intl. travel) 160 Transportation (new/used vehicles, public transportation) 165 Food and beverage (food, coffee, wine, liquor, other beverages) 150 Personal (household products and services, medicine, tobacco, toys) 110 Apparel and fashion (clothing and footwear) 75 Home goods (furniture, appliances, home electronics) 70 Total 1,165
SOURCE The Boston Consulting Group
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