How the Retail Industry is out of step
Introduction to the retail industry and category
(Read our recent in-depth look at the retail industry and category here) Today, the U.S. consumer has made adjustments to the faltering economy by altering their spending habits, while many of the nation’s largest companies and brands struggle as a result. Many are receiving federal bailout money, others are declaring bankruptcy – and only a few are looking for ways to win and grow market share.
Those aiming higher than the rest understand that, no matter the economic situation or the category, a few always emerge as the victors by taking market share from competitor brands.
For that reason, Stealing Share commissioned a national research study of U.S. consumers to get a snapshot of what consumers were thinking in this new economy and how it affects their actions now and in the future.
The survey asked consumers about their habits, decision-making processes and beliefs about themselves and the world at large. It also asked questions about many specific industries, including the retail industry.
The Retail Industry Trends
For the retail industry, the most disturbing news from the research project is that 54.2% of Americans believe they have permanently changed their bad spending habits.
That usually translates to consumers buying less on credit, which has become more difficult to gain and less desirable at the same time.
Americans are working to reduce their credit card debt, having dropped it by 9.7% in first quarter of 2009, according to recent reports.
What has to be more distressing for the retail market is that women are even more adamant about spending less and being financially conservative.
As detailed in the general report on the study, women have become the lynchpins on which any possible upturn of the economy depends.
The good news for the retail industry is that those with the most money – household incomes of more than $100,000 – and, therefore, the most to spend have a shared optimism in the retail system, as it were. Less of them believe they have changed their spending habits for good (only 34.6%) than any other demographic in the study.
The same pattern holds true for making decisions solely on price (44.9%), being less open to new things (only 11.5%) to having more job security (only 21.1% worry about it).
The Bottom Line
Bottom line: There is room for confidence, but what the retail industry will look like in future years is another question.
For years, the major source of retail shopping took place at a mall. But as the Wall Street Journal recently reported, malls are a dying breed with a 6.5% decline in tenants’ same-store sales across malls nationwide.
There is less consumer traffic, and retailers such as Macy’s and J.C. Penney are struggling, while others – such as Sears – are closing locations.
In our study, 47.8% of Americans say they “avoid shopping at a mall.” Even 35.7% of those under the age of 29, those who usually shop at malls most often, avoid shopping at a mall.
The trend is for more outdoor shopping experiences, usually anchored by a large retailer such as Target or Barnes & Nobles.
The Retail Industry as a Category in Flux
Nonetheless, it means there will have to be evolving retail models. The largest threat will continue to be the Internet. It has become the largest issue – and greatest opportunity for some – that all retailers must ask themselves:
Are we going the way of the dinosaur and being replaced by online shopping? If so, it’s time to change the model because industries such as movie rentals (Blockbuster) and many others are dying because they were late to change.
There are certain industries in which consumer interaction is more of a given than others. In clothing, for example, stores will never go completely away as the in-store experience still plays an important role. Many still want to “try it on” before making a purchase.
Still, even those retailers must change their model. Gap recently reported its online revenue increased 13.1%, while total sales declined 7.4%. It doesn’t take an economist to understand where everything’s heading.
When asked if they had purchased a CD at a store in the last year, 51.8% of U.S. consumers said they had not, which speaks to the power of online music providers such as iTunes. It’s one of the reasons why entertainment retailer FYE has seen a 14% drop in sales and has closed 35 stores.
Retailers have developed a unique pattern when it comes to branding. The big box retailers, such as Wal-Mart and Target, have marketed distinctive brands (Wal-Mart is for the smart shopper; Target the smart shopper with style), while many of the smaller specialty stores automatically reflect their consumers by their simple specialty (such as a jeweler).
However, it’s the ones in the middle that are suffering: Circuit City is now defunct, although it has resurfaced with a new owner as an online retailer; office supply stores such as Staples are suffering, as are old guards Sears and K-mart, and on and on.
What does it mean to the retail industry?
The largest retailers, of course, outspend the competition but research has also shown that a down economy always favors the market leaders because consumers view them as safest choice.
Specialty stores, or retailers that have focus, also do well because consumers seek expertise or a simpler way to make choices.
That’s why retailers such as Toys R Us are doing well because they directly reflect their consumer. (Toys R Us reported an increase in comparable stores sales of 1.9%, more than the national average.)
The ones caught in the middle cannot match those billion-dollar advertising budgets and are too general to fight within the specialty market, especially as online shopping has become so dominant.
What are they to do? Put a stake in the ground and claim, “This is who are” and, most importantly, “This is who our customer is.” Right now, those retailers are failing to capture those with the most opportunity – the ones making more than 100K who are more optimistic – and move out of the shopping mall.