Consumers Search for Sweet Deals

Feb. 5, 2009— -- With weekly jobless claims jumping to the highest level in more than 26 years, it's no surprise that consumer spending has plummeted. Many retailers are feeling the burn, reporting dismal January sales.

While Americans are hanging on to spare cash, many are still spending; it's what they're spending on that reflects the changing times.

Consumers are now in the driver's seat. Automakers reported their worst sales in decades with one exception -- Hyundai -- whose January sales were oddly up 14 percent.

Hyundai's new ad campaign, which promises to take back a new car back if you lose your job, is resonating with consumers' recession mentality.

"The customer needs help, and the more that a retailer or brand can be on her side, the more likely that they will gain market and mind share," said Adrianne Shapira, managing director of Goldman Sachs.

When it comes to toys, Mattel saw its sales drop nearly in half the last quarter. Fisher-Price's sales dropped 9 percent. Barbie dolls, down 21 percent. Even $.99 Hot Wheels are no longer a hot seller.

Industry experts said that people are still buying toys but opting for those that will last longer.

When it comes to entertainment for the family, consumers still want an escape -- but the escape has to come cheap. Netflix, the online film-rental company that mails movies home, saw its fourth-quarter profits jump 45 percent.

When it comes to clothing and shoes, consumers are still buying -- just not brand new. Shoe repair has become a popular option. More customers are choosing to repair old soles instead of buy new ones; good news for shoe cobblers, bad news for retailers.

America's frugal recession mentality is not new. Tough economic times have changed the way Americans shop before.

"One thing we saw during the Great Depression was lipstick sales did very well," said Diane Swonk, chief economist at Mesirow Financial.