Earlier this year, as clouds were gathering around the financial industry, but before the more dramatic events of September, I put on something of a Chamber of Commerce hat, over an economist’s suit, in a letter on this page, and launched into an explanation of Milton Friedman's theories of consumer spending. I explained that if you were frightened by the prospect of a fickle consumer who would one day simply stay at home and call a screeching halt to the retail party, you'd be waiting a long time. Because in Friedman's permanent income hypothesis model, the key determinant of consumption is an individual's real wealth, not his/her current real disposable income. I went on to posit that the real wealth of consumers was rising and would continue to rise in the future (propelled primarily by strong job creation).
That was then, this is now, you say? Are you still seeing the glass half (more than half) full, you ask?
Our job is to promote marketing at retail. And god knows, the mainstream media including the more sophisticated media revels in bad news. It's their stock and trade. For years they exaggerated the upside of the "new economy," and in this crisis they are ignoring a variety of fundamentals that indicate continuing strength in the economy.
But I won't replay the larger macroeconomic arguments, or fall back on platitudes about the resilience of the American economy. I'll call attention to the fundamental economic dynamic that drives marketing at retail, and again, as I've also done here before, play devil's advocate. Will CPG's and retailers when they must cut spending weed out the older, ostensibly less effective media spends while increasing investment in areas that can garner more return for their money (i.e., at retail). Will more cautious traditional media spending and even belt-tightening lead to an increase in support for at-retail marketing? Sadly, it's well established that corporations in every industry often cut spending with an ax, not with a scalpel. They typically cut across the board and all departments/initiatives suffer. As Laura Davis-Taylor reported in these pages earlier this year, "cuts are often calculated not by elaborate formulas of ROI for different programs, but during quick meetings and calculator-driven afternoon discussions."
So the question now has gone beyond the question of how far down the recapitalization and realignments that are roiling the financial industry and indeed the economy at large will trickle or flood into retail. Now the question is, in an inevitable move to more cautious spending by retailers, agencies, and CPG's, will at-retail spending be seen as a luxury or as a beacon in stormy seas?
Marketing buckets in this industry fill and slosh around without a lot of mystery or subterfuge. This is retail after all, not the financial industry. We'll all know pretty quickly where the money is flowing. I'm confident that at-retail will see in an increase in spending in '09. The dynamics driving the market have not changed. When the elections are over, when the banks are recapitalized, when yet more new generations of technology make it easier to engage, track, and monetize shoppers, we'll all look back at fall '08 and be amazed and how much market share the smart retailers and brands gained through some bracing times.