Luxury or necessity? Redefining ‘discretionary spend’

It’s often said that a measure of a healthy economy is the degree of discretionary spending by its citizens: spending on items that are not essential but are ‘nice to have’, such as holidays and fashion goods.  For one thing, it indicates personal wealth – the income that a household retains after the outlay on necessities such as taxes, food and housing.

Spending on non-essentials also indicates consumer confidence in the economy.  But, perhaps most importantly, it is what keeps many sectors, including leisure industries, hotels, restaurants, luxury items, entertainment, and even to a degree new housing and automotive, in business.

Traditionally, economists have classed consumer electronics and information & communication technology (ICT) as discretionary purchases.  However, it may well be time to reassess this view, as many items classified as electronic equipment are so ingrained in and essential to many cultures that it would be inconceivable to be without them.  How many businesses seem to grind to a halt if their computer systems go down? And how often does panic set in when we leave home having forgotten our mobile phones? 

In the not so distant past, the cell phone was the preserve of the the business high flyer and Bill Gates’ vision of ‘a computer in every home’seemed to many to be unrealistic. Now these are commonplace – not just in every home, but, sometimes to the irritation of others, in every railway carriage, café and on every park bench too. 

Atradius’ latest Market Monitor (May 2011) reviews the current state and outlook for the electronics and ICT industry in a number of international markets, including the USA, where our report shows that many people now see ICT equipment as necessities rather than luxury items.  Indeed, as the industry develops ways of keeping consumers buying, through innovation and clever marketing, ICT continues to thrive in the US, driven by fast-evolving tablet PCs and smartphones.  

Singapore too can be optimistic about the outlook for its cellphones, laptops and desktop PCs.  This bustling city-state is heavily dependent on electronics and ICT, and is capitalising on both domestic and foreign demand.  By 2012 Singapore is expected to have the highest number of personal computers per capita in the Asia-Pacific region, while rising incomes across Asia make it a fruitful market for electronics and ICT products in particular, with predictions of up to 35% growth in the sale of mobile phones.

Other countries, including Finland – home of Nokia – aren’t quite as upbeat about the industry: in Finland’s case because of Nokia’s loss of market share to intense competition.

Atradius’ Market Monitor also reviews the electronics and ICT industry in Belgium, the Czech Republic, and Norway, and looks at the outlook for the retail industry in the US and Belgium, where price conscious consumers are looking for low cost options and, in the case of Belgium, continuing political uncertainty is dampening consumer confidence.

The Atradius Market Monitor can be downloaded via the link on the right of this page.