Recreation & Leisure Industry Review Q3-2008; McGladrey Capital Markets

Key Trends

Consumers Face Headwinds and are Conserving Cash

A number of economic factors are conspiring to impact U.S. consumer spending in the outdoor, sports, recreation and leisure sectors. The U.S. economy continues to reel under pressure from softness in the housing market, the extended credit crisis, failure of financial markets, and a worsening labor market. The one-time effect of the government's stimulus package has fully played out and increasing inflation has eroded Americans' buying power. Faced with a 17-year high consumer price index and a decline in personal income levels, U.S. consumers are running out of ways to sustain their former spending lifestyles. Lower gasoline prices have given consumers some tangible relief, and we are seeing that relief expressed in the various consumer confidence figures. While consumer confidence was at its highest level in five months in August 2008, financial events in September will chip away or reverse the sentiment.

Value to Outperform Luxury

Historical consumer psychology and behavior in times of distress provide valuable lessons to retailers, manufacturers and others supplying the outdoor, sports, recreation and leisure markets. Research indicates that as a crisis intensifies, stress relief plays a bigger role in spending behavior. At the same time, expenditures seen as extravagant will cause consumers stress. The higher the price, the greater the justification required for a purchase. Mass retailers are expecting to see a pickup in fourth quarter performance due to a shift among shoppers toward value, while department stores are likely to be negatively impacted as middle and upper-income households become increasingly vulnerable to economic pressures.

Read complete report.