Ross Honeywill

MEET THE RECESSION BUSTERS – NEW RESEARCH IDENTIFIES THE 4 MILLION CONSUMERS WHO WILL LEAD AUSTRALIA OUT OF THE GFC HANGOVER

New research to be released on 18 March 2011 identifies the spending habits of 4 million consumers whose irrepressible consumer confidence is leading Australia’s retail and business community out of the economic downturn created by the Global Financial Crisis.  The two-year study undertaken by Ross Honeywill from the Social Intelligence Lab using Roy Morgan Research data shows that consumer-confidence for Australia’s highest discretionary spenders, known as NEOs, is bucking the trend – consistently running an average of 15 – 20 consumer confidence points above the general population.

While only comprising one quarter of the population, NEOs represent more than half of the discretionary spending power. According to the research, during the current global downturn NEOs are buying twice as many books, drinking four times more premium and super premium wine than anyone else, flying three times more frequently, eating out at a restaurant five times more often than other Australians, utilising Internet banking five times more often than the general population, and dominating credit card use, risk insurance, investment lending and high interest online savings accounts.

“From our qualitative research we estimate the global economic meltdown hit NEOs’ assets by $150,000, that’s only 10% of their average asset holding – so, they’re not blinking,” says Honeywill. “While they are temporarily out of the share market, and are buying less, NEOs are spending more on so-called nesting and on experiences that enliven their spirit.”

Honeywill says this trend has been echoed through many periods of economic challenge.  “This group of consumers known as the New Economic Order or NEOs were the first to be back spending in the market during the last recession; and after 911; and after the SARS virus outbreak.  NEOs’ trademark is they are driven by a desire for new experiences, rather than price sensitivity.”

Top recession-busting trends currently attracting the purchasing power of these profitable NEO consumers include:

• yoga classes and private trainers
• authentic eco-resorts
• seeking-out small brands
• drinking less, but better quality wine and spirits
• finding hand-made food
• investing in a mix of liquid assets and smart opportunities in an opportunistic market
• paying a premium for premium advice when it counts
• escalating their use of the Internet because it’s where they control the levers
• spending more on books

Honeywill says while the spending behavior of this band of consumers is resilient, it will shift under extreme adversity. “High-end luxury brands are being abandoned by NEOs as they shift to shoring-up their psyche and to feathering their nest. NEOs have shifted their money out of equities into online cash investment accounts; they are redesigning and extending their home; they are planning for investment property purchases when the prices and interest rates reach an optimal alignment. Their money is active in every economic climate. They just keep moving it to the next sweet spot,” he said.

“Confidence is what makes NEOs recession-busters – and this also makes the conventional wisdom of demographics and socio-economics out of date. They are confident about their personal balance-sheets and about their ability to earn way above the average.

“Recovery in the luxury sector will come first to those who can shake off the big brand image and forge a new kind of ‘relationship-brand’ that offers individuals small and wonderful treasures. Status, prestige, ultimate -these words are history in the NEO economy. Luxury brands that rely on global markets will find it tough throughout 2011/12 because NEOs will be looking for the small pleasures, the experience that touches their spirit. The new mantra for brands throughout the post-recovery phase should be to Think Small.

“For example, while traditional hotel brands are dropping room rates and suffering lower occupancy, Canada’s luxury Clayoquot Wilderness Resort is full of NEOs from Australia paying the full $2,000 per person per night to stay in a tent; albeit a glamorous tent in an eco biosphere with meals prepared by one of the best chefs in North America,” he said.

Case study for NEOs in recession – premium wine

A retail wine study published by the US National Bureau of Economic Research, found that during the last recession, the premium wine industry was significantly more robust than the cheaper wine sector. NEOs were buying and drinking premium wine – regardless of the economic slump. The report attributed any overall decline in wine consumption to a reduction in spending by lower discretionary spending Traditionals – that large group of non-NEOs who exhibit conservative social attitudes and reluctant spending patterns.

At the end of the 1992 recession, Goldman Sachs reported that while cheaper wine sales had been declining during the year, premium wine sales had been booming with the $US10-$US14 per bottle category continuing to show double-digit growth.

“Confident NEOs stay strong and keep consuming during recession while Australia’s 8 million Traditionals just stop spending,” Honeywill said.

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