Spain: Low-cost life for all
9 January 2012
With the crisis in full swing, and pay packages as low as 1000 euros gross per month, there's no lifestyle choice other than that of austerity. It's a trend that's changing consumer habits.
In Spain, 17.1 million people bring home about 1,000 euros gross per month. That's 63 percent of the working population, according to figures from the Union of Technicians of the Ministry of Finance (Gestha). To get to the end of the month on this kind of money in your pocket is a Herculean task. Many families are counting the cents closely before they head out to shop. For thousands of Spaniards today, buying something has become an act of renunciation.
Against this harsh backdrop, the low-cost shopping phenomenon is flourishing, and it does not look set to die out any time soon. Quite to the contrary, it's becoming a more and more prominent feature of society and its economy. Restaurants, travel, cars, insurance, electronics, real estate, leisure, clothing, food: nothing seems to escape the pull of low-cost shopping.
The question, though, is whether low-cost shopping will still be around once the crisis has passed. Is it a structural or temporary strategy? How will the consumer have changed by then? Will he or she be more rational, less impulsive? Dare we assume that the search for the lowest price has become a new way of life?
“Compulsive and disproportionate shopping is a pathological condition that we frequently encounter. On the other hand, saving, even in a compulsive way, doesn’t figure in any medical handbook,” says Guillermo Fouce, Doctor of Psychology and professor at the Universidad Carlos III (Madrid). No one is pathologically thrifty. This is not a trivial remark, since any pattern of consumption taken to the extreme can lead to problems.
No doubt, the consumer in the post low-cost shopping era will differ from the consumer of today. First, he will have learned some lessons. “The buyer is finding that low-cost shopping helps him purchase similar articles at lower prices. And anyone who wants to sell things more expensively these days may as well close up the shop,” declares Javier Vello, responsible for Distribution and Consumption at the PricewaterhouseCoopers. Secondly, “after the crisis the client will look more closely at their money and will be more aware of what is behind each item,” Vello anticipates.
Which will have consequences. Little by little, it will be harder to build up a profile of the consumer, and business strategies will be greatly influenced by the trend. Some consumers, for example, may buy cheaply for certain products, but when it comes to other products the very same people, with the same purchasing power, may go for the most expensive items.
Whether things work out this way remains to be seen, however. In the meantime, the low-cost concept is spreading fast and wide. “The consumer has gone from looking for what I call a 'superior functionality' to looking for the 'good enough functionality', which is cheaper. In other words, why should I buy a car with all the extras if I don't really need them?” asks Javier Rovira, a professor at the ESIC Business and Marketing School.
Juan Carlos Esteban, a young designer, married with two children, exemplifies how the low-cost lifestyle has been catching on across much of Spanish society. His “low-cost strategy” began in 2007, “when the costs began to eat into the wage slip”. His strategy takes in telecommunications – “I've changed my mobile phone operator three times in a short time, and instead of spending 50 euros per month, I now spend 18” – insurance – “I took out an insurance policy for a minivan with an exemption that has saved me 350 euros over the earlier policy” – and food – “I buy mostly in-store brands”. In total, he says, adding up all the savings, he spends 25 percent less each month than he did before.
Growth of low-cost shopping is down to the airlines
As Jorge Riopérez, managing partner at KPMG Consumer and Industry, explains: “The essence of low cost is not to keep prices down just for the sake of having low prices, but to cut non-relevant costs in order to lower the prices…. There's some ongoing confusion between 'low cost' and 'low price',” he adds. “The first, obviously, means lowering prices, but competitive pricing does not have to go hand in hand with lowering costs. It can be based solely on lower profit margins.”
In any case, at bottom this phenomenon conveys a sense of urgency and need. As paradoxical as it sounds, it also conveys a desire to keep up one's standard of living and to go on enjoying a product or a simple luxury. “The increased awareness of families facing the current economic problems, coupled with the need for some belt-tightening while maintaining the status quo, is sharpening wits to come up with various schemes to afford certain whims that otherwise would be totally unaffordable,” explains David Sanchez, Director of Media Analytics Nielsen market consulting, getting at the crux of the matter.
Much of the success of the phenomenon of “couponing” lies in the desire to keep up one’s standard of living. Airlines and websites for off-the-rack fashion are the flagships of the low-cost concept. In fact, the search for bargains and better prices on the web has seen the audience for discount and coupon websites offering leisure activities and cheaper prices shoot up by 64 percent.
But those who follow economic trends will recall that the massive growth of low-cost shopping in Spain is down to the airlines. Not so much in terms of turnover, perhaps, but rather in the social recognition of this phenomenon.
Nonetheless, however one looks at the issue – whether as low-cost, low-price or simple advertising – the truth is that the low-cost phenomenon allows thousands of people to shed that uncomfortable feeling of being out of fashion, resigned to wearing the same clothes every year, visiting the same stores and buying the same old things.
Translated from the Spanish by Anton Baer