Silver Linings… Ten consumer trends that will help you create new Housewares business in the next 12 months

1. Silver Linings…Ten consumer trends that will help you create new Housewares business in the next 12 months Robin Albing Albing International Marketing March 23, 2008

2. BACKGROUND • Consultants to consumer products companies for over 20 years • Specialize in home furnishings products (furniture, housewares, appliances, home textiles, floor coverings, tabletop/gift, lighting, kitchen/bath cabinets/fixture, home office, home electronics) • Also, clients in fashion, jewelry, food • Planning, research, implementation, development • AIM’s Research is increasingly a hybrid approach on all levels • And a lot of it these days is online…

3. Ten consumer trends that will help you create new housewares business in the next 12 months…” • Parsimony is Chic • Treasure Troving • Go Green, but • Make Me Smart, Please • Hope Floats • We Are All In The Same Boat • Alternative Altruism • Mining Local Resources • Ethics Skeptics • Creative Innovation

4. At AIM, we are long-range thinkers, but these times are different… • Our clients need answers to help them fast • So we conducted some major research very fast to provide them with some “shovel ready” answers • At the same time, when we make specific recommendations to clients on a proprietary basis, they include long term implications

5. What do some of the current big names think? • Tom Friedman – Use recession to re-tool economy and environment • Steven Levitt • Malcolm Gladwell • Daniel Pink – Entering a new age moving from Information Age to Conceptual Age • Scott Anthony – Business model innovation • “The Great Disruption” • All are essentially optimists

6. What are Consumers really thinking about spending in 2009? • Online Surveys – Jan, Feb, Mar 2009 • Survey samples of 900 – 2000 each • National distribution (geographic, ethnic, age, primarily female) • Focused on middle class • Online Focus Groups • Two groups conducted each month • National distribution • Focused on middle class • Kitchen Island – March 2009 • National participation • Limited international input

7. Online Survey With hybrid research design, a quantitative survey provides context... • Focus group screener question for floor care - must own cat and/or dog • Return to look at pet owners v. non- pet owners

8. Online Focus Groups ...while online qualitative research provides depth on how and why.

9. Online Focus Groups BEHIND THE VIRTUAL MIRROR IN FRONT OF THE VIRTUAL MIRROR Virtual Mirror Secondary Client Washington Minnesota Texas California Primary Client AIM Moderator Iowa New York Virginia Florida Setup/Help AIM Staff Atlanta Colorado

10. Kitchen Island • Bi-monthly consumer panel to discuss current projects and implications • Originally physically sitting around a kitchen island • Limited by time and place • Single physical location • Need to be flexible and responsive to client needs

11. Kitchen Island • Evolved from audio conferencing to video conferencing to Skype to discussion group software to real-time • Now, we sit around the virtual table with consumers from all over the world • Can obtain instant feedback during product/program development process • And can get info on several projects at once

12. Parsimony is Chic • Frugality is the new ostentation in a cash strapped world • Eye-popping expense accounts, showy jewelry, McMansions—are out and frugality is back in fashion… • “Undercover Rewards” • Can’t be obvious – women are rewarding themselves in small treats that are not obvious to others – fabulous face/hand/foot creams, luxurious underwear, facial treatments • Expensive designer handbags are out, oversize colorful plastic handbags are popping up at very high end events • OK to treat yourself, if you find a truly stunning deal – which can be found with the deep discounts out there

13. Parsimony is Chic • Pleasure that requires big cash outlay back burner in many households • Dream trips to Tuscany, big fishing boat, big screen TV = delayed big-ticket items • For some, this recession may put those dreams on hold permanently • But, “I still want to feel good even if it’s not the same way as before…” • “Small things that make me feel good are OK.” • 12 years ago, Faith Popcorn called them “small indulgences,” but today they’re different • Even impulse purchases must provide value • Can’t be frivolous

14. Parsimony is Chic • Successful small indulgences in housewares might be products that offer a fashion “pick me up” or they might be that very special item consumers save up for or buy in increments… • “I just bought some beautiful cloth napkins at Williams Sonoma…make my everyday dishes look classy…” • “I am saving up for the $350 food processor” • “I want a set of really good knives, but I am going to buy them one at a time, about every six months.”

15. Treasure Troving • Discounts and deals are everywhere, you just have to look • People are bragging about the deals • Treasure hunts are fun! But is it habit forming or just a fad? • “I will NEVER pay full retail again.” • “My friends and I love the dollar stores…there’s a lot of junk, but you can find some good stuff there, too.”

16. Treasure Troving • It’s a channel story – consumers seek out where the treasure hunts are taking place • Using social media to engage influential fashion bloggers and customers alike • Presence on Twitter, blogs – instant update on deals • Any TJ Maxx/Home Goods shopper knows things are going to be scattered and disorganized - that's the name of the game • Re-sale is way up (Craigslist, tag sales, flea markets) and upscale thrift shops are cropping up even in small towns • Smart upscale antique dealers and interior designers are sprinkling bargains among the high ticket items and offers – a growing channel for home goods if the owner understands the mind of the consumer

17. Treasure Troving • Couponing websites – people who never bothered about coupons and affinity programs are now using them • “I used to be too busy to worry about saving a few dollars, but now I can see that it really adds up. I use my grocery card, my Borders card, my Best Buy Rewards card, everything…” • Soon will be able to apply coupons to grocery cards, now limited • Websites cover promotions 24/7, • Average time spent at one site 88 seconds, average savings $16 • More than just bargain hunting • “I feel stupid if I pay full price.” • “I don’t feel guilty if I discover that deal.”

18. Treasure Troving • It’s also a mindset…people are getting beyond the snobbery of the high end retailers • Even spoiled teens are discovering bargain hunting • Turning to thrift shops and bargains at Target and Forever 21 • If there's a luxury item they just can't live without, they're trolling the Internet for the best possible deals, and waiting for the price to drop until it falls within a budget they've set for themselves • Real treasure hunts • Increase in lottery and sweepstakes participation • Gold parties in Orange County • Treasure hunting DVDs (get out your metal detectors)

19. Make Me Smart, Please • People want to act smart, but they are feeling stupid these days • “I thought I was a smart investor, but look at my 401K…please make me feel smart again.” • And it’s stupidity combined with fear • They are also distrustful • “Why are those guys who lost my money getting million dollar bonuses?” • “Why can’t they build a car that people want to buy?”

20. Make Me Smart, Please • Depression Era thinking…what worked then? • Recession Gardens – home gardening is thriving • Burpee Seeds sales expected to increase 20 to 30% this year • Food made from scratch may take longer, but it always tastes better than store-bought (taste trumps health) • Neglected domestic arts like knitting, quilting, sewing and embroidery are being eagerly embraced, especially by the young • Self-reliance – “why pay someone to do what I can do myself”? (cutting the grass, preparing the taxes, designing my interior) • There are instructions for everything on the web, but “I do need help/clear instructions” • “Help me to do it myself…”

21. Make Me Smart, Please • Provide consumers with a way to accomplish a task in a superior fashion • Cook a phenomenal gourmet meal • Create the most incredibly well designed kitchen • Clean the bathroom better than any cleaning service in half the time • Create systems for doing things better and persuade the consumer that it really works • Associate with credible resources (Remember the Good Housekeeping Seal?) • And consider spokespeople that make us feel warm and fuzzy (Martha Stewart, Oprah)

22. Make Me Smart, Please • Making do with what we have and getting things in order • 57% of consumers plan to organize their homes in the next 12 months (next closest activity was update kitchen cosmetically at 18%, only 8% have completely stopped spending) • A lot of paring back and throwing out • More considered purchases (investments) and less on impulse • Also, this is an era where customer service and empathy with consumers’ issues will pay off in brand loyalty • “I stick with the brands I know even if it costs a little more because I know I won’t get ripped off.” • Store brands are getting second looks, especially in food category, due to price

23. Hope Floats • People want to hope • Consider the success of Slumdog Millionaire around the world • “the perfect kind of creation to survive in the world’s increasingly cross-pollinated cultural landscape” • Not Horatio Alger story, was a story about luck • In India it is very, very hard to move beyond the slums…”a dream” • Real hope in slums of Mumbai = commerce • Dharavi – 1 million people people living there (BBC), produce goods worth over $650m a year • 15,000 single room factories • Exports goods all over the world

24. Hope Floats • In early March 2009, confidence that the US economy is "headed in the right direction" jumped 15 points to 41% • But it’s a lot like floating in the Perfect Storm and people are really hoping that the boat doesn’t sink • Offshore clients are looking to the US for leadership out (turnaround from 6 months ago)

25. Hope Floats • Tap into rays of hope and optimism…create “happy” products that boost moods • “I want something to make me feel better…sunny colors, whimsical themes, personal care products that make me feel younger, etc.” • “It’s a gray time of year. I am looking forward to spring – spring cleaning and a little sprucing up in my home” • When stock market ticks up, there is an instantaneous uplift in attitude • Every little bit of good news affects our moods • When there is sustained good news, there will be pent up demand…GET READY

26. Hope Floats • Geographical differences in levels of hope and the type of hope • Middle America = affected later and deeper, but more underlying optimism • In January, 63 % of small business owners expected conditions to get a lot or a little better (versus 37% in November) • Don’t expect a quick turnaround, but 60+% do expect economy to regain former strength • Coastal angst - “who me?” – reactionary/ cynical • Not going to lead us out

27. Which statement best applies to your outlook for 2009?

28. We Are All In The Same Boat • Means that we need to cooperate in order to succeed • “We can’t afford being isolationist or economically selfish.” The world financial crisis is a “perfect storm.” “We are all in the same boat.” • Community is key

29. We Are All In The Same Boat • Negative side Schadenfreude • A lot of this right now, but Americans are not vengeful over the long term • “While I love to see bankers suffer, actually my brother is one, so I'm pretty torn." • Basically optimistic/hopeful (want to see the economy back on track)

30. We Are All In The Same Boat • Reaching out to friends via internet • Started with the Presidential election campaign, then recession commiseration • Party Plan – fulfills social need (spending time together), provides income and value (low overhead) • Boomers will be working longer, but we’ll work together (keep us young?) • Millennials can take risks (can’t get a job anyway)

31. We Are All In The Same Boat • Dinner and a Movie Netflix and cooking together • If there is food, they will come – community events, home entertaining, covered dish suppers, gourmet clubs, etc. • Business owners - Before You Can Multiply, You Must First Learn to Divide • Partner with others and give away a piece of the equity pie • Work as partner with suppliers and distribution channels • Pool resources, share information, abandon adversarial attitudes

32. Go Green, but… • “Green has to be green” (eco-green has to deliver money-green) • Most consumers would like to be eco-conscious, but perception is that green products are 20% more costly • “If the products are more friendly to the environment, I will buy them, but not if they cost more than regular products.” • “I always re-cycle, but I just can’t afford the organic vegetables anymore.” • Slide back into old habits because of cost • Have to see ROI sooner, rather than later

33. Go Green, but… • Not just words or gimmicks, but strategies • Make it a part of everyday life, not a marketing ploy • Great ideas are emerging (and they’re simple) – insulated grocery bags, not just recyclable, but functional • Would like to fix things – not just throw them away – desire to get away from the disposable society • “Give me a real tool kit and instructions. I want to fix things.”

34. Go Green, but… • Provide an opportunity to turn in old items for new replacements • Responsible re-cycling • Re-invention of “razor blade” sales theory • Energy use reductions – carry energy star concept down to smaller items • Battery responsibility • Dramatic shift from print journalism to online. • Newspapers are still #1 landfill item

35. Go Green, but… • How to get message to consumers without use of print?? • WOM is still best – generational exchange is huge among Millennials/Boomers – reach one, you’ve reached the other • Social networking – be careful - FaceBook is passé, Twitter was never a young thing, Linked In? • What’s new on the net?

36. Go Green, but… • Also, effectiveness issue – green products do not always work as well • “I had a waste basket made out of recycled plastic…it was kind of cool, but then it fell apart…never again.” • If it costs the same (or only slightly more) and it works, people WILL buy the green product!! It doesn’t even have to look as good.

37. Alternate Altruism • No resurgence of organized religion as during Great Depression • Altruism has replaced religion for those who need to give and who need to get • Tough market in terms of cash contributions to NPOs • Over half of charities in a recent survey reported a decline in income • One fifth of charities are seeing an increase in demand for their services

38. Alternate Altruism • People are looking for creative ways to maintain support for pet NPOs • “We are pooling our resources with our parents and siblings for great impact in our charitable giving.” • “I have to decide what I can afford most – a week in the Dominican Republic on a work project or a contribution…it’s a tradeoff and probably they would prefer I just give the money, but it’s not as satisfying.” • Power and influence more important than money for women • Bodes well for NPOs in terms of staffing talent • “My local hospital (where I volunteer) has asked me to consider being head of fund raising…it’s less pay, but I won’t be going back to Wall St. soon.”

39. Alternate Altruism • Altruistic minded people donating time and talent instead of cash • Parents and alums are volunteering for colleges and private schools instead of writing checks • Increased numbers of bankers are offering their professional expertise to charities on a voluntary basis because of insecurity in the financial world • Lawyers are doing Pro Bono work either on loan or because they are laid off • Young couples are volunteering together for a cheap date • Soup kitchens have a need; people are reaching out with food donations as well as volunteer time

40. Alternate Altruism • Good Samaritans • 56% of consumers would like to do more for others • 45% are attracted to products and programs that help others • Alternative Gift Fairs have replaced Mistletoe Markets, Craft Fairs and Rummage Sales at churches and hospitals • Consumers especially like things that are simple and low denomination (donate $1 at cash register, % of profits offered for charities) • “I like things that stay close to home. I feel bad about what is going on in Darfur, but I can see homeless people right here and I would like to do something to help.”

41. Mining Local Resources • Dozens of “buy local” campaigns across the United States banding together to encourage consumers to shop nearby independents • Independent retailers in cities with buy-local campaigns saw holiday sales fall 3.2% from the prior year, while those in cities with no such movements recorded a 5.6% drop • “Grow local” and “buy local” food programs have environmental and health benefits

42. Mining Local Resources • Movie attendance is up (Broadway way down – too costly) • Attendance up at local science centers/museums/arts centers • Taking advantage of free nights at museums • Attending more special events at museums and performing arts centers • Local sports events (colleges, high school games) • Weekend getaways instead of offshore trips

43. Mining Local Resources • Stealth channels – below the radar screen • Go where the people are (Borders, Starbucks, Panera, Knitting Store) • Connecting at new places – knitting shops, libraries (reserving books online), diners • Consider benefits of producing or assembling in the US • State and local governments are providing incentives for bringing work home and creating jobs • Lower transportation costs

44. Ethics Skeptics • This is very important to people, but they feel helpless… • Populist outrage – Enron/WorldCom/Madoff/AIG • Where are the ethical business leaders who can get US businesses back on track? • Trickling down to everything we buy…people want to support ethical leadership • Danger of using ethics as marketing tool, but if it is genuine - if you really follow through on ethical behavior (no cover ups) - people will reward you (remember Tylenol?) • Came up in every focus group (1982) • “Companies have to do the right thing and let us know, but don’t advertise it…it’s different.”

45. Ethics Skeptics • The percentage of students who admit to cheating, which had risen from about 20 percent in the mid-1900s to top 50 percent in 2002, has dropped about 10 percentage points. Why? • Definition broadening (internet = not cheating) • Technology harder to fool • Probably not more ethical • “I keep hearing about kids cheating at my kids’ school. I wish there were something we could do.” • People of all ages are concerned about Ethics • Students are opting for Ethics courses over religion courses at universities. Seen as comparable. • Ethics courses have been added/emphasized at business schools • On the spiritual side, applications to seminaries and divinity schools are predicted to be up in ’09 (historical)

46. Ethics Skeptics • New perspective on money/profits emerging (forced) • “Craigslist,”an analyst wrote, “does not fully monetize its traffic or services. Wall Street doesn’t get the concept of serving customers first, and worrying about revenues later, if at all (and never mind profits).” • Will it last, have an overriding effect future mindsets? • “Cannot return to business as usual…a boom and bust economy…culture has to change.” • Greed is good morphs into solid profits are good • Channel anger into something positive • Energy of capitalism is good, me first capitalism…not so much • “I think companies need to make money so people can live better lives. Better products for their customers. Better living for their employees.”

47. Creative Innovation • Entrepreneurialism thrives in recessions (Fedex, CNN, Burger King, Microsoft, Wikipedia…) • Drastic changes create opportunities for those with vision and grit • Less competition in downturn (established products belonging to the same domain will decide to cut the budget to promote the product and opt for a laid-back approach) • Risk taking – what have we got to lose? • Dare to fail • But avoid risk excess (recklessness) • Dot com boom/bust led to rediscovery of growing businesses step-by-step, ushering in smarter startups • Leapfrog the competition – anticipate the change

48. Creative Innovation • During the Depression, companies that continued advertising and other marketing efforts (Chevy, Camel) rewarded when country emerged • Increased brand loyalty and consistency • People stay home more so they see more media ads (TV, internet) • Start with the consumer and move backwards, but do not ignore the needs of the customer (gatekeeper)…fill the gap • Problem solving, not just recession problems (solve the consumer’s pain), but problems of living • “I have a lot of problems. If someone could just make my life easier, I would spend money on it.”

49. Creative Innovation • Consumers preferred multi-function kitchen appliances by a margin of 2 to 1. • This is a huge shift from the past. • “I will spend more money on a product that can solve several of my problems at once.” • Distinguish through graphic design • Websites that stand out • Packaging and promotional materials • “These days I always gravitate to the bright colorful packages, especially if it’s a gift”

50. Creative Innovation • In this recession, there are very cheap deals for people with cash • Well established, well known brands are available for very little money • Consider joint venture innovation and product introductions • Harness technology, but keep it human • “I hate calling customer service and getting a machine. I love my bank because I always get a real person…in my own city.”