By Matt Pillar, Editor In Chief, Retail Solutions Online/Integrated Solutions For Retailers
Read most any economy-related editorial published in the retail media and you'll find unanimous agreement on several observations of consumer spending in the "new economy." Among them:
- Shoppers are less impulsive, more needs-based
- Shoppers are far less loyal and more likely to shop around
- "Aspirational" shoppers have come to their senses and are living within their means.
So what? These observations are meaningless without a nugget of advice on how you should react to these changes. Late last week, I talked to two sharp executives from HP and SAS about these trends, and they shared some advice that you can take action on.
Dealing With The Needs-Based Consumer
Bjoern Petersen is president and general manager of the Retail Industry Group for HP Enterprise Services and an astute observer of the global retail landscape. While he laments the recession on one hand, on the other he sees value in what he terms a "correction" in consumer behavior in the U.S. "We're seeing less impulse shopping and more needs-based buying in America," he observes, "and while there's pent-up demand to go back to old spending habits, the means simply aren't there and won't be for some time." Throughout our discussion, Petersen reflected on his native Germany, where there exists a consumer-spending environment that he terms "far more conservative and needs-based, even in a boom economy." Petersen advises those U.S. retailers who are adjusting to changing consumer behavior to in turn adjust their merchandise mix and price points accordingly. "The merchandise and the brands that helped you beat the competition before won't help you now. Determine which products will. This recession is more prolonged than usual and there's no assurance that we'll return to boom shopping days, so don't be afraid to make sweeping changes at the merchandise level," he says.
What To Do About Loyalty Lost
If shopping has become about price for your consumer, then retailing should become about price for you. When was it a bad idea to respond to widespread consumer demands? Dianna McHenry, director of the global retail practice at SAS institute, says that gaining access to data that will help maximize the sale and margin performance of merchandise is hot among SAS customers. "We're seeing a lot of interest in price, markdown, and promotion optimization," she says. "Size optimization has been popular among apparel retailers, as has demand forecasting," she says. SAS recently announced price and pack optimization engagements with Aeropostale, Tilly's, and The Wet Seal.
At HP, Petersen sees a bright and growing future for m-commerce despite the gray cast of the recession, and it's the price-conscious, "I'll shop around" consumer that he credits for this growth. As such, "retailers must acknowledge that the consumer's mobile device has quickly become a tool that's called on during the selection and comparison process." Ironically, swift adoption of the phone as a shopping assistant has perhaps been fueled by the recession and, as such, happened more quickly than anticipated. Petersen encourages retailers to meet the consumer at all points of interaction by quickly developing and executing on a mobile strategy.
You should also consider your marketing and promotions strategy. If your consumer is suddenly less brand-aware and more price-conscious, create awareness around price, not brand and merchandise. Advertise more on price, less on product.
Keeping — Or Winning Back — The "Aspirational" Shopper
Loosely defined, the "aspirational" shopper spends more than he or she really should (based on income) on specific brands. Pre great recession, most of us fit this description at one time or another, some of us chronically. As pent-up demand unleashes and the economy slowly improves, some anticipate a return to this kind of spending behavior. Whether that happens or not, Petersen says retailers can make incremental adjustments to their merchandise mixes to retain or win back the folks who like to "shop up." In one example he suggests that, due to disposable income pressure, a certain segment of "aspirational" Ann Taylor shoppers migrated down to Macy's, some "aspirational" Macy's shoppers migrated down to Target, and so on down the line. As personal incomes rebound and the unemployed go back to work, what can Target do to keep its newfound Macy's shoppers? What can Ann Taylor do to get its defectors back?
Petersen points again to affecting change to the merchandise mix. He suggests that as the rebound occurs, retailers like Target might maximize their newfound "cool" factor by adjusting the quality, brand image, and even price point up to retain Macy's level defectors. Reciprocally, he says high-end retailers might lure newly price-conscious consumers back into the fold by building in a line of merchandise that comes with a more palatable price tag.
Ramping up sophisticated private-label brands can have an impact here as well. SAS' McHenry says the best private labelers have been at it for some time and were in good position to leverage established private label brands when the economy turned down. But this is a perfect time for retailers who haven't done so already to explore private labeling, which gives you more merchandise control, better time to market, and significantly better margins than name-brand merchandise. SAS' new traction in the grocery business (Wakefern is a recent customer win) is due in part to grocers' interest in analyzing private-label merchandise performance.
What strategies have you deployed to meet changing consumer behavior head-on? Join the discussion by joining our LinkedIn group here: http://www.linkedin.com/groups?gid=2264725