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HomeCover Story
Retail in Today’s Economy:
Reactions and responses from both sides of the cash register
By
Bill Lucas,
Group President,
Retail Business Group
Today may be the toughest environment that most retailers have ever faced in their professional careers. Media headlines and marketplace realities are filled with examples of eroding consumer confidence, reduced spending (especially for discretionary products), limited access to capital, falling stock prices, and reduced market capitalization for publicly-held companies. While retailers have been hit especially hard, the manufacturers that supply them have certainly not been immune either. So how are retailers reacting?
Retailers’ Reaction
The answer varies, of course, from retailer to retailer, but there is some commonality worth calling out. The most obvious sign to consumers was earlier, broader and deeper holiday promotions. Expecting that sales will be weak, many retailers are focused on gaining share nonetheless. They are doing this to both salvage some sense of success in tough times, but also to position themselves to hold on to their buyer bases for when times (hopefully) turn more positive. Kmart resumed its lay-away program, and others followed. Electronics retailers have been reducing prices on flat screen televisions and bundling them with Blu-ray. Discounts have ranges as high as 70 percent in some cases. Many will work to grow sales with the expectation of reduced margins – growing share for those who are successful, but likely reducing profits.
Then there are the more painful business decisions which are more selective or not as readily apparent. Many retailers are reducing their inventory and the amount of merchandise on their selling floors. They are doing this either because they can not finance optimal inventory levels or because they are reluctant to be left at the end of the season holding merchandise they can’t easily finance or sell without reducing margins even further. While earlier in 2008 there was already a slow-down in new store openings, even by Walmart, many other retailers are now reducing their openings from previously announced levels. And, of course, store closings are accelerating. Some are simply pruning under-performing stores. Others, like Circuit City, are closing stores to hopefully pre-empt even more drastic actions. Finally, a number of retailers announced they would be reducing the number of seasonal employees they hire as a means of managing expenses.
The recent liquidation of retailers such as Linens N Things, Tweeter and Mervyn’s has illustrated the lack of confidence by potential “white knights” to ride in and pick up some retailer properties even at bargain prices. Stock prices of publicly-traded retailers have been battered over the past year; recent market performance coupled with reduced expectations for holiday purchasing has many of them quite concerned.
Consumers’ Reaction
So how are consumers reacting? The most visible indicators are the lowest levels ever for consumer confidence and reduced spending. Store traffic is lower, and the average spend per store trip is down. Even the high-end department and specialty stores have not been immune to this. There are also indications that many consumers are “trading down” the stores where they purchase – staying in the market, but shopping at stores that are somewhat less expensive than where they generally shop. Stores like Walmart and Kohl’s have been clear beneficiaries of this trend. NPD’s recent Retail Landscape Report notes the primary drivers that lead consumers to consider purchasing in a given retailer are product content (a spectrum from basics to latest trend) and price (a spectrum that ranges from every day low price to very high prices). Consumers are clearly modifying their shopping behavior based on these two attributes.
How NPD Can Equip You to Respond
There are numerous ways NPD can help its manufacturer clients and retailer partners in this uncertain environment (or any other). Primary is to ensure they are able to make fact-based decisions to the degree possible, then to provide perspective to their internal intelligence and to facilitate collaboration between retailers and their vendors. Standard point-of-sale (POS) measures such as volume, share, and price enable retailers to track their relative performance in the market.
While NPD’s standard reports using POS data do not allow disclosure of retailer-specific data, some retailers do allow NPD to release their identified data compared to the market for specific categories to specifically approved manufacturers. Collaboration in using these account level reports data is proving to be very effective for both parties in these challenging times. In selected industries NPD is also evaluating performance at market, trading area, or same store levels to pinpoint areas of over- and under-performance.
NPD can identify retailer-specific information from our online consumer panel, providing insight on the shifting dynamics in the evolving environment. Who is gaining and losing? And will these gains and losses “stick” once things return to a more stable state? Evaluating consumer demographic or segmentation groups is also providing direction in terms of the effectiveness of programs against targeted groups.
Ultimately, it all comes down to optimizing marketplace results. NPD is working hard to deliver value to its manufacturer clients and retailer partners, facilitating their ability to take specific actions that help grow their businesses. In the last year, NPD has identified over $130 million in incremental business that was generated by retailer partners where NPD data and insights played a role. That need for quantifiable value has never been greater than in these uncertain times – and that is what NPD is working so hard to deliver.
Bill Lucas, Group President of NPD’s Retail Business Group, manages the groups that service and provide analytics to meet the information needs of the company’s retail partners. He also oversees the recruitment and maintenance of NPD’s panel of more than 300 retail organizations in North America.
Bill has over 30 years of market research experience, and is considered an expert in consumer panel and retail tracking analysis and applications.