Changewave Research: 2004 Consumer Holiday Spending Survey

ChangeWave Research: 2004 Consumer Holiday Spending Survey

ChangeWave Research Report:

2004 Consumer Holiday Spending Survey

Sluggish Spending Growthfor the Holidays But There are Still Pockets of Strength – Led by Consumer Electronics

Overview

This year’s Alliance Holiday Spending survey, conducted October 19-28, points to sluggish spending growth by retail consumers this Holiday season, although there will still be pockets of strength – particularly in consumer electronics. A total of 1,430 ChangeWave Alliance members participated in this survey.

(A) Overall Spending

Overall Spending Tightens. Compared to a year ago, 33% of respondents say they will spend more during the next 90 days (including the Holiday season) and 20% will spend less. But this is a clear contraction from our last consumer survey (Aug ’04), when 40% said they would be spending more during the next 90 days.

But Consumer Electronics Spending Jumps. Forty-six percent (46%) say they will spend more on Consumer Electronics this Holiday season than last – a jump from the 30% who said they would be spending more on Consumer Electronics during our previous retail spending survey (August 2004).

Household Repairs/Improvements Spending Slows. Although spending for the next 90 days on Household Repairs/Improvements is still positive (Net Difference Score = +14), it represents a pullback from the vigorous spending on Household Repairs/Improvements in our August 2004 survey, when it was the top item.

Auto Spending Weak. Spending for Automobiles remains weak. Only 10% of respondents say they will spend more on automobile purchases in the next 90 days than they did a year ago – while 31% say they will spend less.

(B) Holiday Spending

Sluggish Spending Growth for the Holidays. The percentage of respondents who say they will “Spend More Money” in their holiday shopping fell to 18% in the current survey – down from 19.5% last year. The percentage who say they will “Spend Less Money” (18%) is unchanged from a year ago. While the findings of this survey point to sluggish spending growth this Holiday season, there will be pockets of strength – particularly in consumer electronics spending (as presented in Part C of this report).

Slightly Fewer People to Receive Gifts. Respondents will be buying gift items for slightly fewer people this year (7% say more people vs. 10% say less people = -3%).

Increased Energy Costs Fueling SluggishHoliday Spending Growth. Importantly, 30% of respondents report increased energy costs will have an impact on their Holiday spending – with 3% saying it will have a “Significant” and 27% a “Modest” effect.

Overall Shopping Categories: Winners and Losers. This year, our survey results show that the biggest winning shopping categories with regards to more gift spending will be “Online Shopping” and “Discount Retailers,” while the biggest losing shopping categories will be “Full Service Retailers” and “Mail Order Catalogues/Telephone.”

One Cause For Concern. In a clearly bearish finding, each of the shopping categories we looked at (e.g., online shopping, full service retailers) registered a year-over-year declinein the percentage of respondents saying they’ll spend“More Gift Shopping Money” there for the holidays. There was also a year-over-year increase in the percentage of respondents reporting“No Gift Shopping This Year or Last Year.”

(C) Consumer Electronics Spending

Winning Items: Digital Cameras, Cell Phones, Laptops and LCD Flat Panel TVs. For the third year in a row, Digital Cameras (22%) is the item respondents are most likely to buy for themselves or as a gift during the holidays. Cell Phones (18%– With or Without a Camera) is the second most popular consumer electronics item, followed by Laptop Computers (12%) and LCD Flat Panel Televisions (10%).

Winning Services: VoIP, Satellite Radio, HDTV. While the survey results point to sluggish Holiday spending growth overall, they also show several pockets of real strength in consumer electronics – led by a huge 225% jump in the number of consumers planning to add home VoIP (Voice Over Internet Protocol) service over the next six months. Satellite Radio Service (183%) and HDTV (110%) rank as the next two biggest growth pockets in consumer electronics services.

Best Buy Still Tops for Home Entertainment Products, But Amazon is Surging. The Big Box Specialty Stores continue to be the favorite place to shop for home entertainment and networking products – and Best Buy (49%) dominates this space by a wide margin, with CircuitCity (18%) a far off second. Notably, third place Amazon.com (16%) has experienced a 4-point surge since our August survey.

(D) Satellite Radio

More Subscriptions. Five percent (5%) of respondents report they now have a Satellite Radio subscription for their car – up 1-pt. since our last Satellite Radio survey in May. Another 8% say they plan to buy one for their car in the next six months, while 3% say they will buy one for their home and 3% are buying a portable device.

Sirius Increases Market Share Among Current Subscribers. In the five months since our previous survey, the percentage who say they subscribe to Sirius Satellite Radio has increased from 1.3% to 2.0%, while the percentage saying they subscribe to XM Satellite Radio has stayed virtually the same (3.7%).

Those Who Plan to Purchase Turning to Sirius. By a 2-to-1 margin, those planning to purchase a Satellite Radio subscription in the next 6 months are turning to Sirius Satellite Radio (6%) over XM Satellite Radio (3%) echoing our May survey results.

The ChangeWave Alliance is a group of 4,900 highly qualified business, technology, and medical professionals in leading companies of select industries—credentialed professionals who spend their everyday lives working on the frontline of technological change. ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, and converts the information into proprietary quantitative and qualitative reports.

Helping You Profit From A Rapidly Changing World ™

Table of Contents

Summary of Key Findings...... 4

The Findings...... 5

(A) Overall Spending...... 5

(B) Holiday Spending...... 8

(D) Satellite Radio...... 20

ChangeWave Research Methodology...... 22

About ChangeWave Research...... 23

I. Summary of Key Findings

Introduction

(A) Overall Spending Patterns

(B) Holiday Spending Patterns

(D) Satellite Radio

II. The Findings

Consumer Holiday Spending Survey

Total Respondents (n = 1,430)

(A) Overall Spending

(1) Question Asked: Compared to this time a year ago, would you say your overall spending over the next 90 days (including the Holiday Spending season) will be more than last year, less than last year, or the same as last year?

Current
Survey
Oct ‘04 / Previous Survey
Aug ‘04
More Spending Than Last Year / 33% / 40%
Less Spending Than Last Year / 20% / 21%
Spending Will Remain the Same as Last Year / 46% / 38%
Don't Know / 1% / 1%

Overall Spending Tightens. Compared to a year ago, 33% of respondents say they will spend more during the next 90 days (including the Holiday season) and 20% will spend less. But this is a clear contraction from our last consumer survey (Aug ’04), when 40% said they would be spending more over the next 90 days.

(2A) Question Asked: Which of the following consumer items will you be spending more money on over the next 90 days (including the "Holiday Spending" season) than last year? (Check All That Apply)*

Current
Survey
Oct ‘04 / Previous Survey
Aug ‘04
Consumer Electronics / 46% / 30%
Travel/Vacation / 37% / 36%
Household Repairs/Improvements / 34% / 41%
Restaurants/Everyday Entertainment / 25% / 18%
Durable Goods for the Home / 25% / 21%
Children's Services (e.g. camp, education, lessons, other activities) / 13% / 18%
Automobile Purchase / 10% / 9%
Other Services (e.g. adult education, health and fitness activities) / 9% / 12%
Other / 3% / 3%

*Note that in the Aug 2004 survey the question asked was “Which of the following consumer items will you be spending more money on this summer (including the "Back to School" season) than last summer?”

(2B) Question Asked: And which of the following consumer items will you be spending less money on over the next 90 days (including the "Holiday Spending" season) than last year? (Check All That Apply)*

Current
Survey
Oct ‘04 / Previous
Survey
Aug ‘04
Automobile Purchase / 31% / 29%
Travel/Vacation / 30% / 26%
Durable Goods for the Home / 28% / 23%
Consumer Electronics / 26% / 27%
Restaurants/Everyday Entertainment / 23% / 24%
Household Repairs/Improvements / 20% / 15%
Children's Services (e.g. camp, education, lessons, other activities) / 14% / 10%
Other Services (e.g. adult education, health and fitness activities) / 12% / 11%
Other / 0% / 0%

*Note that in the Aug 2004 survey the question asked was “And which of the following consumer items will you be spending lessmoney on this summer (including the "Back to School" season) than last summer?”

Net Difference Score – Current Survey October 2004

Spending
More
Money
Next 90
Days / Spending
Less
Money
Next 90
Days / Net Difference
Score
Consumer Electronics / 46% / 26% / +20
Household Repairs/Improvements / 34% / 20% / +14
Travel/Vacation / 37% / 30% / +7
Restaurants/Everyday Entertainment / 25% / 23% / +2
Children's Services (e.g. camp, education, lessons, other activities) / 13% / 14% / -1
Other Services (e.g. adult education, health and fitness activities) / 9% / 12% / -3
Durable Goods for the Home / 25% / 28% / -3
Automobile Purchase / 10% / 31% / -21

Change in Net Difference Score – Current Survey (October 2004) vs. Previous Survey (August 2004)

Net
Difference
Score
Current
Survey
Oct ‘04 / Net
Difference
Score
Previous
Survey
Aug ‘04 / Change in
Net
Difference Score
Consumer Electronics / +20 / +3 / +17
Restaurants/Everyday Entertainment / +2 / -6 / +8
Automobile Purchase / -21 / -20 / -1
Durable Goods for the Home / -3 / -2 / -1
Travel/Vacation / +7 / +10 / -3
Other Services (e.g. adult education, health and fitness activities) / -3 / +1 / -4
Children's Services (e.g. camp, education, lessons, other activities) / -1 / +8 / -9
Household Repairs/Improvements / +14 / +26 / -12

But Consumer Electronics Spending Jumps. Forty-six percent (46%) say they will be spending more money on Consumer Electronics this Holiday season than last – a big jump from the 30% who said they would be spending more on Consumer Electronics during our previous retail spending survey (August 2004).

Household Repairs/Improvements Spending Slows. Although spending for the next 90 days on Household Repairs/Improvements is still positive (Net Difference Score = +14) compared to a year ago, this is a pullback from the vigorous Household Repairs/Improvements spending in our August 2004 survey, when it was the top item.

Auto Spending Weak. Spending for Automobile Purchases remains weak, with only 10% of respondents saying they will be spending more on automobile purchases in the next 90 days than they did a year ago, and 31% saying they will be spending less. The -21 Net Difference Score for Autos is 1-percentage point worse than the previous survey (August 2004), when Automobile Purchasing was already the weakest spending category.

(B) Holiday Spending

These next few questions focus specifically on Holiday spending plans.

(3) Question Asked: Have your Holiday spending plans changed in any way from a year ago?

Current
Survey
Oct ‘04 / Previous
Survey
Nov ‘03
Yes, Have Changed My Holiday Spending Plans / 39% / 38%
No, Have Not Changed My Holiday Spending Plans / 61% / 61%

(IF YES) In what ways have you changed your Holiday spending plans?

(3A) Question Asked: Will you be spending less money, more money, or the same amount of money in your Holiday shopping as you did a year ago?

Current
Survey
Oct ‘04 / Previous
Survey
Nov ‘03 / Previous
Survey
Nov ‘02
Spending More Money Than Year Ago / 18% / 19.5% / 8.0%
Spending Less Money Than Year Ago / 18% / 18.0% / 40.0%
Spending Same Amount of Money, But Differently Than Year Ago / 8% / 18.0% / 13.0%
Spending Same Amount of Money / 56% / 45.0% / 39.0%

SluggishHoliday Spending Growth This Year. The percentage of respondents who say they will be “Spending More Money” in their holiday shopping fell to 18% in the current survey – down from 19.5% last year. The percentage who say they will be “Spending Less Money” (18%) is unchanged from a year ago.

While the findings of this survey point to sluggish retail spending growth this Holiday season, there will be pockets of strength – particularly in consumer electronics spending (as presented in Part C of this report).

(3B) Question Asked: Will you be buying gift items for less people, more people, or the same number of people in your Holiday shopping as you did a year ago?

Current
Survey
Oct ‘04 / Previous
Survey
Nov ‘03 / Previous
Survey
Nov ‘02
More People Than Year Ago / 7% / 7% / 4%
Less People Than Year Ago / 10% / 12% / 24%
Same Number of People As Year Ago / 83% / 81% / 72%

Slightly Fewer People to Receive Gifts. Respondents will be buying gift items for slightly fewer people this year (7% say more vs. 10% say less = -3%). These results are similar to those of a year ago.

(3C) Question Asked: Will you be buying lesser quality gift items, higher quality gift items, or the same quality gift items in your Holiday shopping as you did a year ago?

Current
Survey
Oct ‘04 / Previous
Survey
Nov ‘03 / Previous
Survey
Nov ‘02
Higher Quality Gift Items Than Year Ago / 11% / 16% / 8%
Lesser Quality Gift Items Than Year Ago / 8% / 7% / 17%
Same Quality Gift Items As Year Ago / 81% / 76% / 76%

Quality of Gift Items. Eleven percent (11%) of respondents say they will be buying “Higher Quality Gift Items Than a Year Ago”, and 8% say they will be buying “Lesser Quality Gift Items”. While still a net positive, this is down somewhat from a year ago.

(3D) Question Asked: Please elaborate on how you'll be spending differently for the Holidays. What, if anything, will you be doing differently from last year? For example, will you be substituting "service-type" gifts (e.g., day trip to the spa, tickets to a show) for "product/gadget" gifts (e.g., DVD-R's, video games) or vice-versa?

Spending More
Spending More on Higher End Technology/Consumer Electronics / 14%
Spending More on Travel / 11%
Spending Less
Spending Less Overall/Buying Lower Cost/Fewer Gifts / 15%
Spending Less Due to Economic Reasons / 5%

Sample of Alliance Member Responses:

(a) Spending More

(i) Spending More on Higher End Technology/Electronics (14%)

EFF6395 writes, "Expecting to purchase more electronic items - particularly if prices continue to drop."

RAD9830 writes, "I'll be buying more product type gifts, e.g. new mobile phone, DVD's."

W3M2351 writes, "Spending more on product/gadget gifts like LCD TV, Laptops, etc."

WAS9107 writes, "Buying more electronic and computer gifts that last longer, day trip to spa for wife and daughter."

RZE4206 writes, "More expensive digital video gadgets for gifts."

BEN9954 writes, "More high-end electronic goods as grandchildren become older."

KRI8936 writes, "More tangible gifts such as theater sound system, telescope, digital camera, cell phone."

WIN5806 writes, "Will buy new consumer electronics like hi-definition wide screen TV and MP3 to improve home entertainment."

ROD0138 writes, "DVD-R, hard drive upgrades, more electronic gadgets for a 'smarter' house."

ATA7371 writes, "Giving High end hi tech items."

LEH7835 writes, "Electronics for family - larger ticket items LCD TV."

JAS6982 writes, "Replacing/upgrading PC's and purchasing HDTV."

(ii) Spending More on Travel (11%)

INV5280 writes, "Planning to take the family on a vacation trip during the holidays.”

KID4411 writes, "Will be spending more this year because we do every other year with in-laws for Christmas... so travel costs for a family of 5... The kids are also a year older, which will likely transform into a bit more expensive gifts and we go to ski country this year which means more services costs as well."

BMA7440 writes, "Airline tickets, cruise tickets, new laptops for my children."

ASH6535 writes, "Holiday trip to Hawaii."

SAU3923 writes, "May go on a Cruise Vacation."

JOH3355 writes, "Trip to Vail for XMAS."

INT8286 writes, "Travel will be a three point round trip which will be more costly."

UP20999 writes, "Paying for the kids and grandkid to go on vacation with us."

JAC7862 writes, "I plan to use gift books for co-workers and travel for family this year."

(b) Spending Less

(i) Spending Less/Buying Lower Cost or Fewer Gifts (15%)

CTO0987 writes, "Cut back on the amount spent."

WJF4066 writes, "Purchasing essentially smaller, less expensive gifts with no intention to sacrifice quality (as in a cheaper gift of the same proportions as last year.)"

HJB3376 writes, "Fewer items per person.”

BFR7467 writes, "Lesser dollar value gifts for most. No gifts for those that did not give us gifts last year."

FEA9527 writes, "Buying as little as possible."
RIC5073 writes, "Fewer gifts of same quality."

CHK7275 writes, "Buying fewer gifts."

(ii) Spending Less Due to Economic Reasons (5%)

MDU7911 writes, "Because I am in transition I will have less money to spend this year."

LLY2276 writes, "I will be buying fewer gifts this year because I have lost my job and therefore have less money to spend."

SZA1176 writes, "Our spending budget has decreased this year due to increased living expenses, e.g. gasoline, real estate taxes, power, association fee increases, and commodities."

LAR8402 writes, "Expect to be buying smaller gifts for family members since wife is considering early retirement."

(4) Question Asked: What effect – if any – are increased energy costs (i.e., gasoline, heating oil, natural gas, electricity) having on your Holiday Spending plans?

Significant Effect - My Holiday Spending Will Be Much Lower Because of Increased Energy Costs / 3%
Modest Effect - My Holiday Spending Will Be Somewhat Lower Because of Increased Energy Costs / 27%
No Effect on My Holiday Spending Plan / 67%
Don't Know / 3%

Increased Energy Costs Fueling SluggishHoliday Spending Growth. Importantly, a total of 30% of respondents report increased energy costs will have some impact on their Holiday Spending – with 3% saying it will have a “Significant Effect” and 27% saying it will have a “Modest Effect.”