Recession-Proof Retailing

Recession-Proof Retailing Marketing strategies for AMERICANCONSUMERS are cutting back. They are spending less on retailers in slow economy. junk food, T-shirts, and jeans, and on cars many couldn’t afford anyway. According Keep on inventing. to Andrew B. Hargadon, associate profes- sor at the Graduate School of Management at UC Davis, “Fifteen years of binge-buying SUVs is just one of the reasons. People are losing that discretionary income and pouring it into their gas tank. Remember that most of them are filling up their tank three times every two weeks. That’s a hundred dollars less a week to spend at the store.” Many consumers were ill-prepared for a weak economy. Now retailers are seeking ways to reestab- BERTRANDPELLEGRIN lish their value with consumers in order to 6 8 ZELL/LURIEREALESTATECENTER Table I: How consumers would spend U.S. rebate checks What will you do with your government rebate check? April 2008 Pay down bills 42% Save it 21% Do not qualify for rebate check 14% Spend on discretionary items 12% Other 11% Source:The NPD Group Inc./Consumers Speak Out on the US Economy keep them shopping. A few retailers have Cohen argues that far too many retail- seen sales drop by as much as 25 percent. ers are cutting back in the wrong places— The bankruptcy of the twenty-year-old less product, less service, even less invento- Sharper Image is one of many retail casu- ry. However, this knee-jerk reaction ulti- alties, and the International Council of mately short-changes the customer. So Shopping Centers is forecasting that over- what can retailers do to entice consumers all store closings could reach nearly 6,000 back into the store and part with that stim- this year alone, the highest since 2004. ulus check? From big-box retailers to cor- Consumer spending has steadily ner boutiques, the smart retailer is one declined since the beginning of the year, who is strategic with his merchandise following a weak Christmas season. In a while exploring new ways of connecting May 2008 NPD Group survey, 58 percent with consumers. of consumers said “We are in a recession,” and indicated that they plan to curb spending or carefully consider how they THEMOVINGTARGET spend. Chief industry expert Marshal Cohen of NPD Group, Inc. says, Many retailers were unprepared for the “Consumers are finally starting to react to sharp decline in consumer confidence that the price of gas and other rising costs and occurred in late 2007, opting for a bunker are shifting shopping intentions.” That is mentality rather than a strategic one. But certainly reflected in another study, which in such times, the last thing a retailer found that only 12 percent of people who should sacrifice is positioning and a loyal were asked, “What will you do with your customer base. According to STORES Top government rebate check?” indicated that 100 Retailers, the most successful retailers they would use the money for discre- consistently remain ahead of the competi- tionary items (Table I). tion, reinventing themselves well before a trend peaks. But many retailers, both large REVIEW 6 9 and small, have cut back on their funda- consumers, perhaps because soaring gas mental outreach tools. They have slashed prices are keeping them at home rather marketing and advertising budgets, scaled than on an expensive trip. A plasma screen back or eliminated in-store services, and television helps parents rationalize keep- stopped updating their website with fresh ing the kids at home, and saving $40 on content and just-in-time messaging. an evening at the movies. “Retailers today are trying to let the mer- Satisfying consumer concerns is a chandise speak for itself… And brands too philosophy Target Stores, Inc. has should not rely on retailers to communi- embraced, but it has recently gone to cate their message—they won’t,” says extra lengths to underscore its message. Cohen. Many retailers end up chasing During the Golden Globe Awards, trends that have nothing to do with their Target launched its “Hello Goodbuy” brand value in the market. campaign to remind consumers that A recession is a time to go back to basics, Target still stands for style and value that is, getting the merchandise right, com- (Figure 1). Target spokesperson Hadley municating what the product does (with Burrows says, “We’ve heightened our the right message), and showing why the focus on our frequency-driving business consumer needs the product. This is the including pharmacy, food and commodi- formula that retailers such as Apple and the ties, and placed greater emphasis on the “everyday low price”-type stores have stuck Pay Less side of our brand promise—in with through thick and thin. our weekly circular, in-store signage, and Now, more than ever, is the time to through greater use of value-pricing on develop messages and concepts that speak end-cap displays.” Target has also begun to the customer with the theme of “pur- to experiment in about 100 stores with chases with a purpose,” focusing on bulk what it calls “Pharmacy TV:” television foods, dual-purpose items, and merchan- programming on health and wellness, as dise that satisfies the whole family. The well as new products. It is reinforcement successful merchandiser understands the of Target’s value message. But, is it work- desires of the consumer, such as: “This ing? “We’re still testing it, but our store will last a long time and never lose its managers say that customers are watch- value;” “I will be able to share this with ing it. We’ll be exploring this tool fur- my family;” or “It’s a classic item that can ther,” said a Target spokesperson. be used every day.” Home electronics— Private label items are also an emerg- always a volatile category—still manages ing market. In 2007, Target’s private-label to feel like a sensible purchase to many food items contributed to a 13.1 percent 7 0 ZELL/LURIEREALESTATECENTER Figure 1: A direct mailer fromTarget’s “Hello Goodbuy” campaign Courtesy Catalyst Studios sales increase. Walgreens has begun sell- LEARNINGFROMLOSERS ing “premium” products that blur the dis- tinction between national and house “There but for the grace of God go I” is brands. Of course, it is always easier for what many retailers are thinking these big-box retailers to negotiate value pric- days, as former heavy-hitters bite the dust. ing with their key vendors, but how does In the 1990s, themed shopping—retailing a small, locally owned boutique succeed masquerading as an amusement park— without compromising selection? The was popular. The Disney Store (Figure 2) answer lies in closer tracking of customer was a classic example. But in an age of purchases. Many smaller merchants have sharper and more highly calibrated meth- been successful in negotiating smaller ods of retailing, the shopping-as-entertain- orders with their top vendors, or split ment paradigm has lost its meaning. The orders with another retailer. The result is Disney Stores lost their relevance when less stock, but a greater chance of it being they saturated the market and the “fun sold at full price. experience” lost its luster. The recent clo- REVIEW 7 1 Figure 2: Disney Store, San Francisco sure of 98 Disney Stores (in the United neighboring brands reinforce the audi- States) was due not simply to an econom- ence profile? ic downturn but also to an over-saturation The Sharper Image, on the other of the market and lack of synergy with hand, lost its appeal not only because of neighboring tenants. its debacle with an air purifier (resulting In an economic downturn, being next in a class-action lawsuit and a large inven- door to a Tiffany’s or Saks Fifth Avenue tory of unsold products), but also because may no longer be an advantage. Retailing of an over saturation of the market. The synergy, whether in a boom or a bust, is Sharper Image brand ceased to be rele- critical to sustaining a brand’s integrity vant in a world where new technology during hard times. Recession-proofing a moved so fast that by the time it was dis- retail center requires the right tenant played in a store it was already being dis- mix. And while every brand wants to be counted at Best Buy or in an online store. a flagship, an economic downturn The Sharper Image merchandise became demonstrates that the important ques- outdated—even kitsch—with a random tions are: Is the brand still relevant? Do mix of goofy gadgets. 7 2 ZELL/LURIEREALESTATECENTER CONNECTINGONLINE lacks: easy price comparison, conven- ience, and concise product information. It is no secret that the network television In the online world, shoppers not audience is getting older, in fact, it may only can compare prices and product rat- even be disappearing. The average ings, but can also discuss the benefits of household has made a slow and steady a product in chat rooms and with move away from network television, to friends. Such real-time user testimonials cable and the Internet, where they find influence buying decisions and create an not only entertainment and community, online community around special inter- but also a way to shop that does not ests. But many retailers continue to see require them to step into a store. “Most their online brand identity as merely a young people in their twenties are get- virtual storefront, rather than as an ting all their content on the Internet,” opportunity to connect with their cus- says Andrew Hargadon, the author tomers. Chat rooms, fan sites, and fash- of How Breakthroughs Happen: The ion blogs are just a few of the online for- Surprising Truth About How Companies mats through which retailers can develop Innovate.

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