Shoppers Spoiled by Bargains Balk at Higher Prices

Now that the national economy is showing signs of reviving, can higher prices on consumer goods be far behind?

Not if the American shopper can help it.

Market researchers say the mood of consumers has swung sharply from the free-spending days of the 1980s. People are looking for better deals when they buy everything from dresses to computers to hamburgers. Consequently, nearly any business trying to take advantage of the strengthening economy to pass along price increases to consumers is likely to run into a roadblock.

“Consumers aren’t in a mood to spend like there’s no tomorrow, and to the extent they do spend, they are going to be more cautious and value-driven than they have been in many years,” said Ira Kalish, an economist with the retailing consulting firm Management Horizons.

Richard E. South, 44, a self-employed carpenter from Santa Ana, is a case in point.

He bought his first color TV set at a neighborhood Target store on Friday for a sale price of $229--after three months of comparison shopping. “If they didn’t drop the price, I might have tried buying a second-hand set in a yard sale,” he said.

To some extent, savvy consumers are simply taking advantage of the knowledge that, even if the economy is picking up, lots of retailers are still suffering. “In this market, buyers can dictate prices, because most dealers are overloaded,” said Carmen Koosa, owner of the Nissan of Downey car dealership.

Many consumers have also been confident that inflation won’t come roaring back. That certainty could reinforce the instinct to comparison shop; fear of price increases, by contrast, might prompt shoppers to buy hurriedly.

A survey taken last month by the market research firm Leo J. Shapiro & Associates found that, of 450 U.S. households polled, only 19% expected inflation to rise over the next few months.

A year earlier, the figure was 31%. The confidence of most of those surveyed was supported by a government report Friday showing that consumer prices rose a modest 0.3% in May, the same as in April.

Longer-term factors--attitudinal shifts that won’t end with the recession--are contributing to consumers’ stinginess, too.

After bingeing on stereos, clothing and restaurant meals over the last decade, many aging baby boomers appear to have lost some of their appetite for spending and are ready to tighten their belts, economists say.

And even if they don’t want to give up their yuppie pleasures, many of these consumers have little choice, because they have gotten deeply in debt, by historic standards.

What’s more, customers have gotten used to lower prices during the economic downturn. Over the past year or more, marketers across a broad spectrum of industries have successfully slashed prices to bring in customers:

* In the fast-food business, Taco Bell Corp. started the price-cutting trend in December, 1988, with what is known as its “value menu” concept. The Irvine-based firm lowered the price of its standard taco and several other items to 59 cents.

The plan worked spectacularly.

Taco Bell’s profit rose 37% to $150 million last year on sales that climbed 19% to $2.4 billion; its first-quarter results this year leaped, too. Other chains have followed with similar approaches, including McDonald’s, which instituted a “low-down menu” in Southern California.

* Theme parks also reduced prices. Faced with weak attendance, Knott’s Berry Farm permanently lowered its children’s admission to $9.95 from $17. Disneyland instituted a temporary price cut--the first ever in the park’s 36-year history--during the traditionally slow winter months. “It was definitely considered a success,” Disneyland spokesman John McClintock said.

* In the auto business, even Japanese auto firms have resorted to customer rebates and other sales incentives to combat a profound slump. Detroit’s car companies say they are now offering rebates or other discounts averaging $1,200 a car--the highest in their history. That’s one reason that the car makers have suffered record financial losses.

* In the personal computer industry, a fierce price war has raged since last fall, as vendors try to keep volume up in a slow--and newly price-sensitive--market.

The “big three” personal computer companies--International Business Machines, Apple and Compaq--are finding that customers are no longer willing to pay a big premium for name-brand products, choosing instead to go with cheaper PC “clones” from companies such as Dell Computer and AST Research.

The computer business demonstrates how painful price-cutting can be for an industry.

IBM, Compaq and Apple all have suffered serious profit squeezes as a result of the basic change in pricing, and few observers expect an upturn in the economy to offer any relief. Each is cutting costs, with Apple laying off 1,500 people even as demand soars for its new line of low-priced Macintosh computers.

To be sure, many of the so-called discounts offered to consumers these days are phony.

Retailers often mark up merchandise to inflated prices for just a day or two, so that they can offer it for “25% off” later on. Others are genuinely cutting prices or holding them steady but are doing so by cutting back on the product--much the way confectionary makers once did with the 5-cent candy bar.

Recently, for example, Taco Bell introduced a 39-cent taco but was quick to admit that its “fiesta-size” version is 40% smaller than the standard 59-cent taco.

All told, though, pressure from increasingly price-sensitive customers is forcing marketers to offer better deals.

Consumers “are looking at prices very carefully,” said Kalish, the economist. “If you aren’t competitive, you’re going to have a hard time getting business.”

Times staff writers Donald Woutat in Detroit, Jonathan Weber in San Francisco and Chris Woodyard, Cristina Lee and John O’Dell in Orange County contributed to this story.

More on Sale

Percentage of department store merchandise that has been marked down. Markdown figures reflect reductions on regularly priced items and do not include special-offer merchandise.

1980: 11.06%

‘81: 11.94

‘82: 13.05

‘83: 13.80

‘84: 16.10

‘85: 16.54

‘86: 19.31

‘87: 16.67

‘88: 16.27

‘89: 17.07

Source: National Retail Federation