January 14, 2008
Consumers Exert Control and Stop Spending
Wendy Liebmann, chief executive of WSL Strategic Retail, describes the economic scene as being in a state of “anarchy” and retailing is no longer immune from its deleterious affect.
“Americans cannot control the big things such as oil prices, falling home values, mortgage costs and rising property taxes, so they want to control the small things,” Ms. Liebmann told Reuters. “They are watching what they spend on everything.”
Ms. Liebmann said that her firm’s research shows shoppers making fewer shopping trips and spending less on a whole host of discretionary spending categories including accessories, apparel, appliances, computers, electronics and perfume. Two categories defying the downturn are food and pet supplies.
A period where consumers are changing the way they shop offers retailers opportunity if they can make the necessary adjustments, she told the news service.
Ms. Liebmann believes that department stores have a major opportunity to achieve gains this year as they have developed product selections that better fit the lifestyle needs of consumers. She also sees a big upside for drugstores with improvements in the front-end beauty category and the addition of in-store clinics.
Mass merchants and specialty retailers are going to have a tough time in Ms. Liebmann’s estimation as consumers continue to limit the number of trips they make to stores.
Discussion Questions: Do you share Wendy Liebmann’s assessment of the current state of the economy and retailing? Are consumers making fewer trips and spending less when they do shop? What channels do you think are in the best position to weather an economic storm?
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Good grief, Wendy Liebmann, retailing has always been anarchy. In Russia they can tell you where to shop, what to buy, and how much to pay, but not here. The beautiful, pure, simple, pristine, unfettered nature of retail is anarchy. That’s what makes it so much fun!
“A period where consumers are changing the way they shop [?]” Please identify for us a period in time in which consumers WEREN’T changing the way they shopped. Naturally, fewer shopping trips would be a negative influence on sales if average transactions remained the same and if online purchases weren’t factored into the retail equation. But, neither of these “ifs” are true.
Economies are never static. They never hit a high note and sustain it. In fact, the beauty of measured national economies is that they are in flux. It’s a healthy sign when market innovations cause economies to bounce around. In ’74 I paid $65 for a handheld calculator and $100 for a CB radio. Emerging computer and cellphone technologies made those expenditures seem stupid. My 13′ Sony TV cost $300 back when the earth was cooling and dinosaurs sang karaoke. Subsequent technologies created customer-friendly anarchy in the video bidness. I bought a laserdisc player and several discs to go with it back in the early 90s, including “Gone With The Wind.” My investment has subsequently “gone” as well, but I have some very cool silver Frisbees.
Retail is neither a science nor an art. It’s a fundamental force of nature. It’s an exchange of what I have for what I want. Trying to control or predict how it will flow is a fool’s dance. Doing well what you believe in is the only response worth considering.
Ms. Liebmann is right–people are spending less–and wrong–they are going to continue spending less despite department stores’ best efforts. The problem with her theory is that when you’re holding a subprime mortage, your kid is in college, you just got laid off and your car drinks gasoline like a binging wino, it’s really kind of hard to plan that next shopping trip. Worse–people have finally figured out the world doesn’t end if you don’t overspend at Christmas! If the economy doesn’t pick up for the lower and middle classes it’s going to be a long summer and fall.
While I agree that some economic factors are manipulating retail statistics, for the most part, the chain itself can control its own destiny. When a retailer comes to the realization that its business is all about the customer, is when they will achieve better results and capture more market share.
Yes there is anarchy in the retail world, but it is not solely because of the economy. Service is what sells and customers remember where they get good service and continue to patronize those stores that provide them with an outstanding experience.
The bottom line is that people still need stuff and they are being more careful (as they should) on who they give their dollars to. It’s not a forgone conclusion that a customer will shop your store. The retailer must earn the customer’s trust to build a profitable long term relationship with them.
Food price inflation will rocket upwards, propelled by the government ethanol strategy. That will be great for supermarkets and retailers with significant grocery aisles (drug stores, warehouse clubs, Target, and Wal-Mart). Warehouse clubs who sell gasoline will do better, saleswise. Unless fashions get a lot hotter, the apparel business (for high, middle, and low-end department and specialty stores) is likely to remain very weak, with few exceptions. As long as consumer electronics technology keeps advancing, and prices keep declining, Best Buy will do OK, although their competitors (Radio Shack, Circuit City) need to reinvent themselves. Any USA retailer with a successful foreign strategy (Wal-Mart de Mexico, Best Buy in China, etc.) is likely to do better than competitors with USA-only businesses. And most furniture stores need to wait another couple of years, minimum, until housing recovers.
Drug stores have to watch out for all the Democratic health care proposals for 2009, because margins for government-paid prescription reimbursements are likely to be curtailed.
Nothing wrong with Wendy’s assessment. It’s pretty much common sense and any business graduate would have told you pretty much the same thing. The consumer has certainly been subjected to some squeezes this past year. Oil prices and the increasing cost of food due to the oil induced increase in feed stocks are the two major factors in consumer inflation. The sub prime boondoggle is not impacting most consumers as only a small percentage of total consumers had sub prime loans.
In my case, any cutbacks have been due to nothing really hot catching my interest. If there is no reason to look, I won’t be doing any impulse buying. With regard to food purchases, I managed to top 190 lbs over the holidays. My grocer will suffer until about 20 lbs are gone. I believe one think that should be mentioned is that our nation is so wealthy that gasoline prices over $3 have not slowed consumption one bit. In fact, I believe, gas consumption continues to rise.
Could it be that the consumer is only catching his/her breath, and that there is really no slow down other than the constant media induced panic? And believe me , if they can’t create a panic here then something else will fill the space.
The situation we face is based on several factors meeting at once: the housing/sub-prime mess, a wildly fluctuating stock market, high energy and food prices, continuing declines in service levels, and BORING product selection as retailers and manufacturers play it safe due to the preceding factors.
Despite these issues, I believe the American consumer desires to spend–retailers are simply not offering the combination of product, service and value to overcome the economic issues. Wendy may be correct that department stores and drugstores may see gains this year, due to attempts to improve assortments. The recent announcement by Macy’s to expand the availability of the very-cool LUSH bath products line in their stores is an example, as is having Sephora products at JC Penney. I am still concerned though about the retailers’ ability to provide the service to go along with the cool product. If they can’t do it, it is off to the internet for me….
I agree with Wendy’s assessment, although I don’t think I would use the word ‘anarchy’. There seems to be no good economic news lately, and that alone has a negative effect on consumer spending. and retailing certainly has felt the impact. This doesn’t, however, absolve retailers from their share of the responsibility. The industry has been in a period of stasis for a while. And as Ed Dennis pointed out above, their certainly wasn’t any compelling, must-have item or category to drive consumer interest and traffic this year.
This past holiday selling season felt like none that had come before. Black Friday sales were breaking on Halloween and clearance sales were breaking right after Thanksgiving. Retailers seemed to be frantic to capture sales and market share at almost any price. I have the strong sense that one of the long-term effects will be to permanently chase margin out of most every category, across all channels.
This will inevitably effect the industry, the industry will inevitably go through difficult change. More static retailers will suffer, new retailers and concepts will emerge. Those retailers that thrive in this environment will inevitably be focused with exquisite precision on their core niche, their critical points of differentiation, and on meeting the needs and opportunities their core customers communicate to them.
Who has money? My condo assessment just went up $50 a month. My electric rate went up 25% last year and ComEd wants another 9%. Sales tax will likely go up another quarter percent to provide money for the Chicago Transit Authority, which is no guarantee that the fares won’t go up as well. Cook County wants to add another 1% to the sales tax as well as a tax on cell phones. Bread, milk, eggs, cheese…all have gone up over 15% the last year. What hasn’t gone up? Oh…that’s right. My salary. Three years of sad raises less than 2%, but when I look for another job I find that I will make more by staying where I am because everything has been outsourced to India.
There’s your economy right there.
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Good grief, Wendy Liebmann, retailing has always been anarchy. In Russia they can tell you where to shop, what to buy, and how much to pay, but not here. The beautiful, pure, simple, pristine, unfettered nature of retail is anarchy. That’s what makes it so much fun!
“A period where consumers are changing the way they shop [?]” Please identify for us a period in time in which consumers WEREN’T changing the way they shopped. Naturally, fewer shopping trips would be a negative influence on sales if average transactions remained the same and if online purchases weren’t factored into the retail equation. But, neither of these “ifs” are true.
Economies are never static. They never hit a high note and sustain it. In fact, the beauty of measured national economies is that they are in flux. It’s a healthy sign when market innovations cause economies to bounce around. In ’74 I paid $65 for a handheld calculator and $100 for a CB radio. Emerging computer and cellphone technologies made those expenditures seem stupid. My 13′ Sony TV cost $300 back when the earth was cooling and dinosaurs sang karaoke. Subsequent technologies created customer-friendly anarchy in the video bidness. I bought a laserdisc player and several discs to go with it back in the early 90s, including “Gone With The Wind.” My investment has subsequently “gone” as well, but I have some very cool silver Frisbees.
Retail is neither a science nor an art. It’s a fundamental force of nature. It’s an exchange of what I have for what I want. Trying to control or predict how it will flow is a fool’s dance. Doing well what you believe in is the only response worth considering.
Ms. Liebmann is right–people are spending less–and wrong–they are going to continue spending less despite department stores’ best efforts. The problem with her theory is that when you’re holding a subprime mortage, your kid is in college, you just got laid off and your car drinks gasoline like a binging wino, it’s really kind of hard to plan that next shopping trip. Worse–people have finally figured out the world doesn’t end if you don’t overspend at Christmas! If the economy doesn’t pick up for the lower and middle classes it’s going to be a long summer and fall.
While I agree that some economic factors are manipulating retail statistics, for the most part, the chain itself can control its own destiny. When a retailer comes to the realization that its business is all about the customer, is when they will achieve better results and capture more market share.
Yes there is anarchy in the retail world, but it is not solely because of the economy. Service is what sells and customers remember where they get good service and continue to patronize those stores that provide them with an outstanding experience.
The bottom line is that people still need stuff and they are being more careful (as they should) on who they give their dollars to. It’s not a forgone conclusion that a customer will shop your store. The retailer must earn the customer’s trust to build a profitable long term relationship with them.
Food price inflation will rocket upwards, propelled by the government ethanol strategy. That will be great for supermarkets and retailers with significant grocery aisles (drug stores, warehouse clubs, Target, and Wal-Mart). Warehouse clubs who sell gasoline will do better, saleswise. Unless fashions get a lot hotter, the apparel business (for high, middle, and low-end department and specialty stores) is likely to remain very weak, with few exceptions. As long as consumer electronics technology keeps advancing, and prices keep declining, Best Buy will do OK, although their competitors (Radio Shack, Circuit City) need to reinvent themselves. Any USA retailer with a successful foreign strategy (Wal-Mart de Mexico, Best Buy in China, etc.) is likely to do better than competitors with USA-only businesses. And most furniture stores need to wait another couple of years, minimum, until housing recovers.
Drug stores have to watch out for all the Democratic health care proposals for 2009, because margins for government-paid prescription reimbursements are likely to be curtailed.
Nothing wrong with Wendy’s assessment. It’s pretty much common sense and any business graduate would have told you pretty much the same thing. The consumer has certainly been subjected to some squeezes this past year. Oil prices and the increasing cost of food due to the oil induced increase in feed stocks are the two major factors in consumer inflation. The sub prime boondoggle is not impacting most consumers as only a small percentage of total consumers had sub prime loans.
In my case, any cutbacks have been due to nothing really hot catching my interest. If there is no reason to look, I won’t be doing any impulse buying. With regard to food purchases, I managed to top 190 lbs over the holidays. My grocer will suffer until about 20 lbs are gone. I believe one think that should be mentioned is that our nation is so wealthy that gasoline prices over $3 have not slowed consumption one bit. In fact, I believe, gas consumption continues to rise.
Could it be that the consumer is only catching his/her breath, and that there is really no slow down other than the constant media induced panic? And believe me , if they can’t create a panic here then something else will fill the space.
The situation we face is based on several factors meeting at once: the housing/sub-prime mess, a wildly fluctuating stock market, high energy and food prices, continuing declines in service levels, and BORING product selection as retailers and manufacturers play it safe due to the preceding factors.
Despite these issues, I believe the American consumer desires to spend–retailers are simply not offering the combination of product, service and value to overcome the economic issues. Wendy may be correct that department stores and drugstores may see gains this year, due to attempts to improve assortments. The recent announcement by Macy’s to expand the availability of the very-cool LUSH bath products line in their stores is an example, as is having Sephora products at JC Penney. I am still concerned though about the retailers’ ability to provide the service to go along with the cool product. If they can’t do it, it is off to the internet for me….
I agree with Wendy’s assessment, although I don’t think I would use the word ‘anarchy’. There seems to be no good economic news lately, and that alone has a negative effect on consumer spending. and retailing certainly has felt the impact. This doesn’t, however, absolve retailers from their share of the responsibility. The industry has been in a period of stasis for a while. And as Ed Dennis pointed out above, their certainly wasn’t any compelling, must-have item or category to drive consumer interest and traffic this year.
This past holiday selling season felt like none that had come before. Black Friday sales were breaking on Halloween and clearance sales were breaking right after Thanksgiving. Retailers seemed to be frantic to capture sales and market share at almost any price. I have the strong sense that one of the long-term effects will be to permanently chase margin out of most every category, across all channels.
This will inevitably effect the industry, the industry will inevitably go through difficult change. More static retailers will suffer, new retailers and concepts will emerge. Those retailers that thrive in this environment will inevitably be focused with exquisite precision on their core niche, their critical points of differentiation, and on meeting the needs and opportunities their core customers communicate to them.
Who has money? My condo assessment just went up $50 a month. My electric rate went up 25% last year and ComEd wants another 9%. Sales tax will likely go up another quarter percent to provide money for the Chicago Transit Authority, which is no guarantee that the fares won’t go up as well. Cook County wants to add another 1% to the sales tax as well as a tax on cell phones. Bread, milk, eggs, cheese…all have gone up over 15% the last year. What hasn’t gone up? Oh…that’s right. My salary. Three years of sad raises less than 2%, but when I look for another job I find that I will make more by staying where I am because everything has been outsourced to India.
There’s your economy right there.