2010 Retail Outlook Review Series – Part 3

This series will outline retail trends, innovation and best practices for retailers in 2010. To view part 2 click here. Look for Part 4 next week. Please engage! What are your thoughts and strategies for the new retail market?

It’s a whole new ballgame for retail

“It is going to be mano a mano, not based on square footage and capital. It’s based on execution, differentiation, knowing your target customer … and fighting for every one of them.”

- Glenn Murphy, Chief Executive, Gap

The recession has brutally changed retailing. It has exposed and eliminated retailers that took consumer spend and loyalty for granted and rewarded others who have a defined strategy to maintain and grow marketshare. Retailers are competing in an era in which consumers have more information, more choices and more channels than ever before. The pace of change is increasing exponentially. Keeping up will require new and modern answers to the complex questions of our time.

What we see now are two kinds of retailers:

1. Retailers that survived the recession

2. Retailers that are thriving because of the recession

Retailers that have survived – are realizing that in order to regain lost ground, lost sales and lost customer loyalty – they need to quickly transform their processes, their strategies, their pricing and their marketing.

Retailers that are thriving – were able to cope with the changes in their customer’s shopping habits and adapt quickly. These retailers had a strategic model in place that allowed them to respond to consumer behavior – but they need to take new steps to maintain what is sure to be a short lived advantage.

Customer-centric

The customer has always been at the center of retail, but the concern for the individual customer has faded out. It’s not logical anymore as a retailer to look at what consumers were doing in the past. It’s all about now. What are your customers doing today? What are they buying? What are they not buying? How much are they buying? How often are they buying? Are they buying it at the same place? These trends have changed.

Retailers can generalize no more. Today is all about the individual. And if you don’t have what they need when they come in your store or search your website, chances are they won’t be back. And that’s not all, they want to see something new, something fresh, something green, and they want it for less and they want it now.

The market is asking new questions

Today’s new market is asking retailers some very difficult questions – questions that their existing processes and tools do not have the answer to.

• How do you regain brand loyalty?
• How are you doing more with less?
• How will you protect your market share?
• How will you align your business strategies with today’s customer?
• How quickly can you react to the pace of change?
• How do you plan to fulfill the local demands of your stores?
• How do you plan to meet the needs of new channels?
• How will you meet the challenge of internationalization?
• How do you manage 1,000 stores like they are your only one?
• And mostly, Where’s your sense of urgency?

Consumer mindsets have done a 180

Because the recession caused many loyal customers to seek out lower prices and better value, many brands may have lost long-time customers. Shoppers have become more intelligent about what they are buying and they are buying less of it. Frugality in a recession changes long-term habits, not just short term ones. Customers now know that they can survive off of less, they know where they can cut corners, and they have now learned exactly where to go to find the best deal.

How much has consumer behavior changed?

Retail Forward ShopperScape reports that seventy-two percent of all shoppers recently indicated that their shopping behavior has changed significantly or somewhat as a result of the economic environment, and only 7% have made no changes at all (Figure 1).

The New Consumer Behavior Paradigm: Permanent or Fleeting?

Will your shoppers return? If they have deserted you during the recession, you need to lure them back. However, you may need to change your branding to the tune of the new shopper.

The WPP Group discusses a new report that identifies a shift in shopping behavior and the need for retailers and suppliers to adapt to more conscious, practical consumerism.

New shopping behavior data and demographic trends indicate that an enduring shift has taken place as a result of the recent economic downturn. Retailers and suppliers will need to adapt to consumers’ new shopping behaviors to succeed in today’s evolved marketplace and during the post-recession recovery, according to a new report from PricewaterhouseCoopers LLP (PwC) and Retail Forward, a Kantar Retail company, entitled The New Consumer Behavior Paradigm: Permanent or Fleeting?

As outlined in the report, shoppers will be more deliberate and purposeful in their spending, as conspicuous consumption will give way to more conscious or practical consumerism. Rampant deal-seeking will be replaced by more purchase selectivity and the use of shopping techniques and tools discovered during the recession. Additionally, the affluent segment of Generation X and the young Generation Y will lead spending in the recovery.

The report states that companies need to recognize that there will not be a wholesale return to a pre-recession shopping mode and will need to adapt to changed shopping behaviors and patterns to win in today’s marketplace.

Where do we go from here?

Portrait of the New Consumer: Smart and Scared

Mike Duff, from BNET Retail reported the following from The AlixPartners Consumer Sentiment Index study, which queried about 7,700 U.S. consumers on what they buy and where they buy it. Consumers were asked about 63 factors in five major attributes – Access, Experience, Price, Product and Service – that influence their purchasing decisions at 135 retailers.

1. A new shopper emerges. Consumers have become sharper and better educated about the products they buy and where those are available. Previously, consumers ranked time as their most precious commodity, but now they are willing to drive the extra mile to get a product at a better price.

2. Shoppers search for “good enough.” Just a few years ago, shoppers wanted to purchase the best product in a category. Now they are more likely to accept good-enough products. Consumers won’t rebound quickly from trading down because many have been satisfied with their bargains.

3. Consumers continue their flight to value. In every retail sector, and at every price tier, value is far more important than brand loyalty in purchase behavior. A decade ago, service ranked before price in consumer purchasing decisions. Today, service is the least important attribute in every one of the 16 categories in the study. The danger retailers face is that, if they bungle the price/product balance, their customers may look for a better value elsewhere and never come back.

4. Winners and losers pop up in every retail category. Bargain prices aren’t a guarantee of success and a luxury orientation need not be the kiss of death. Luxury retailers can succeed but they must strike a balance by offering a unique experience – including product, atmosphere, and service – that can offset higher prices in the consumer value judgment.

5. Consumers are pickier: Just 15 of the 135 stores in the study met or exceeded customer expectations. According to AlixPartners, the shares of those 15 stores rose twice as fast as the Dow.

Read the full report HERE.

A greener shift in U.S. consumerism

Yes, a recession causes consumers to spend less and reevaluate their spending, but at the same time the recession occurred, a green revolution occurred as well. Looking at the big picture, what we’re really talking about is a giant shift in U.S. consumerism akin to a second coming of the Consumer Revolution! What has occurred over the last year and a half is recession mentality spending, coupled with an onslaught of environmental concerns. So not only are shoppers looking for a better price, they’re also looking for greener, cleaner, sustainable, ethical, efficient, lower impact products.

Greentailing is officially ‘in’

Kathy Grannis, NRF spokesperson discusses the bigger picture of what is now being dubbed “greentailing.”

Everywhere you turn there’s another sustainable project in the works or an eco-friendly fashion line being launched. Greentailing is officially “in” and we are all realizing that you can be green and more profitable at the same time.  One of our clients is reducing waste on their perishable products while making sure their customer sevice levels remain high…surely you can’t be more green and profitable than that, can you??

In addition to reducing their greenhouse gas emissions, reducing energy levels in their stores or eliminating plastic bag usage, many retailers are finding other creative, sustainable projects to undertake.

Gap has partnered with Cotton Inc. in a new, exciting campaign, “Recycle Your Blues”, which encourages shoppers to bring in their old Gap denim in exchange for 30 percent off their next denim purchase at Gap, GapKids or babyGap. The two-week program began March 5 and ended the 14th. Talk about a great reason to shop!

Fast-fashion retailer H&M recently launched its first fully-sustainable clothing line, The Garden Collection. The 80-piece collection hit stores March 25 in a special section of the store and will also include a special shopping bag with a Garden Collection logo.

Target’s new eco-friendly skincare line, One, hit stores nationwide March 1 and offers 28 different product options including lip balms, body butters, solid shampoo bars and bath fizzers. One products come in recyclable, plastic-free packaging.

A few other retailers worth mentioning who are making huge strides in energy reduction and other sustainable efforts:

Kohl’s was recently named 2010 Energy Star Partner of the Year for its commitment to energy management and reductions in greenhouse gas emissions.

With a goal of cutting energy use by 20 percent by 2015, The Home Depot is well on its way having already reduced energy levels 16 percent since 2004. The energy the company has saved so far could power 203,000 homes for one year!

Office Depot is seeking Leadership in Energy and Environmental Design for Commercial Interiors certification for all of its new locations starting in June. Office Depot anticipates 14 new stores will eventually qualify as LEED-certified by the US Green Building Council.

These forward-thinking retailers, and many others throughout the world, continue to find unique ways to do their part to save the earth for future generations of shoppers.

Customer-centricity + greentailing = Localization

The current state of the economy has driven the desire to understand the needs of the market at a lower level of granularity. It has caused a need to create local assortments and inventory fulfillment that reacts to local needs. Most retailers’ existing processes and systems were developed to meet the needs of the average, not the individual. In order to increase demand in today’s markets, the next step for retailers is to take on the challenge of localization.

Localization also comes from localizing distribution and utilizing vendors that produce products in a short vicinity of each store. This type of localization is most easily applied to fresh foods and markets – where customers prefer to support their local farmers and local brands.

Best practice now consists of removing the simplifications from the inventory planning process and instead focusing on real-time local demand and the individual product-location-consumer relationship. Retailers need to create an agile inventory plan that is highly reactive to local demand fluctuations, allowing the retailer to be flexible and respond to how their customers are behaving now. This allows the customer to have product availability when and where they want it.

A leveled playing field

In a Financial Times article, Glenn Murphy, chief executive of Gap, discusses the new ‘roll up your sleeves’ challenges facing retail today.

“There will be some Kohl’s [department] stores that will open, and there will be a few more Forever 21s [fashion stores] … but by our crystal ball and the work we’ve done on the next five years its pretty much a level playing field.

“It is going to be mano a mano, not based on square footage and capital. It’s based on execution, differentiation, knowing your target customer … and fighting for every one of them.”

Mr Murphy, who previously headed Shoppers Drug Mart, Canada’s biggest drugstore chain, delivered a frank assessment of the shortcomings he identified when he arrived, including an “almost criminal” weakness in ensuring return on invested capital, and lack of cost awareness.

“It had been a culture that didn’t necessarily embrace really rolling-up-of-sleeves work that needs to get done inside a really great company,” he said.

You need new answers

It takes the proper mix of science, retail intelligence and merchandising art in order to ensure that every store in a supply chain carries the right inventory, while maintaining a high service level and market share. There is a new market and and a new consumer.  If they are to continue to survive and eventually thrive retailers will need to respond to the demands of the consumer in all channels at all times and ALWAYS with the right answer.  It will be a lot of fun watching the retail market evolve over the next few years…without question this rabbit hole goes a lot deeper than we can even imagine!

Get back in the game

Are you ready this year to know exactly what your customers are asking for at every location and in every channel? Are you ready to have the ability to react the instant their wants change? If you are looking for a solution that can drive momentum for your business this year, check out the solutions offered by Quantum Retail. Our customers see valuable results in 8 to 12 weeks, and our implementation approach gives your team access to the system from the beginning, so you can manage changes to your processes, promotions, products and performance with ease. Create profitability in every tier of planning, forecasting, distribution, allocation and replenishment. Quantum Retail continues to help all of its clients drive positive business value more rapidly than anything seen in retail.

For more information on Quantum Retail solutions, visit: http://quantumretail.com/solutions

Get resources on how to adapt to the challenges of today’s retail market HERE »

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