Tightening the Belt... or Not

A recent article in Bloomberg Businessweek shed light on an interesting phenomena: in this time of economic uncertainty, consumers are are tightening the belt in some areas and opting to buy generics, but at the same time splurging for luxury items. What gives?

Some of it seems to stem from an increasingly savvy consumer. People recognize that the same Crest toothpaste they buy from the dollar store is the same they'd buy from CVS, so why not save a buck? They also recognize that there's very little difference between Tylenol and store-label acetaminophen. But despite being savvy, there also becoming more discriminating. Luxury items which are either functionally different or outward status symbols seem to be on the upswing. While the article cites that much of this is irrational "I saved $5 on toiletries yesterday so I can splurge on a $799 television" (yup, someone needs remedial arithmetic), "The dealer gave me a great deal on the BMW - $1000 below MSRP!" (or you could've gotten a Honda for $10,000 less) or as cited in the article, "I bought the iPad because I can't afford a new iMac" (uh, how about not buying anything at all if you're really worried about paying the rent?)

I think another factor plays into people's shallowness or the desire to look rich without being rich. People want to enjoy using latest toys and gadgets and sharing with friends over Twitter and Facebook how great they are, and the luxury items are also carry a not so subtle "look at me, the crappy economy's not affecting me." But in the privacy of one's own home, nobody will know of the medicine cabinet full of generics, or the fact that you saved a bundle at Dollar Tree. Or maybe the marketing machines are just too effective into sucking us into buying things that we really can't afford. The line between "wants" and "needs" have been blurred - when people say they "need" their Starbuck's each morning, that's a feather in the cap for that Starbuck's marketer.

If this is indeed the "new abnormal" as the article suggests, then maybe we're in a slightly better position than we were a few years ago when we were in the "irresponsible credit purchase" phase of the economy. But not by much.