Definition: Consumer discretionary is all non-essential goods or services offered by companies. Simply put, it is a category of products that are not considered primary for consumers in a given economic system.
What Does Consumer Discretionary Mean?
Discretionary products are any goods that are not necessary and thus not required to enjoy basic living conditions. In contrast, those products that are necessities of life such as food, drugs, medical supplies, hygiene or personal care products, often classified as consumer staple. The discretionary category can include cars, luxury goods, clothing, sports equipment, movies, furniture, and services such as hotels, restaurants, TV or any other leisure.
Considering the purchase of a consumer discretionary good depends upon an individual financial condition and the economic landscape. In weak economies, some companies that produce goods for basic living or consumer staple tend to outperform those that produce consumer discretionary products. Investors can use economic conditions to predict where the market is headed in terms of consumption, as a growing economy with low levels of unemployment and fair wages will often create the an increased demand for consumer discretionary goods. On more developed economies, consumer discretionary products will usually get a bigger portion of the household budget, as primary needs can be fulfilled easily and cheaply.
Example
POLL is a famous department store that offers a variety of essential and non-essential products. Nevertheless, almost 50% of its inventories are consumer discretionary goods. Its sales are highly affected by economic cycles and performance since consumers buy these discretionary products when they feel financially confident. If they are worried about their income or the future of the economy, on the other hand, consumption will usually decline.
For POLLs a great indicator of the current economic condition is the candy, soda, and snacks segment, which tends to grow when the economic landscape is solid. Renowned investment companies and financial firms closely track POLL’s annual report to understand how the day-to-day economy is actually behaving.
