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Retailers, Consumers, and the Recession: Weathering the Storm

Written By: Sherry Fox
Published On: July 22 2009

The State of the Retail Industry

To the general public, it seemed to come out of nowhere and went into crisis mode with the fall of Lehman Brothers Holdings. What exactly? The recession, the economic down, the financial crisis—as it has been referred to. Seemingly overnight, the already distressed financial market was now extremely volatile. On November 20th, 2008, the Dow Jones Industrial Average experienced its largest one-day point loss (closing at a five-year low of 7,552.29).

While one could argue that a number of things propelled the economy into its latest downturn, the fact still remains that, because of it all, businesses (among others) are hurting. The latest economic crisis has automakers seeking bailouts, long-standing companies filing for bankruptcy, and both small and large retailers closing their doors after years of fruitful business. According to the International Council of Shopping Centers, by the end of 2008, approximately 148,000 retail establishments had closed that year—the largest number since 2001.

While many big businesses have been hit hard, retailers too have felt the effects of the weakened economy. In an attempt to beat the downturn, many have employed a range of strategies to entice their customers. Some have been successful; others have failed.

The recession has also had its affect on us as consumers. Our spending habits have changed, and we're becoming increasingly demanding in terms of what goods we purchase, and when and how we purchase them.

In the following article, I will discuss some of the challenges that retailers today are facing, as well as some strategies that may help them to weather the storm. While most of these strategies are nothing new to retailers (i.e., they may already be a part of retailers' day-to-day business), those that adopt some—or all—of these methods have a better chance at survival during this recession.

I will also touch on the subject of consumer spending—from our individual day-to-day purchasing habits to the needs and spending of the companies we work for (namely, spending on technology).

The Retailer

From the Mom and Pop Shops to the Big-box Stores—None are Left Unscathed

According to the Retail in Canada: Everything Is Different, but Nothing's Really Changed report by McKinsey & Company, consumer confidence (at least in Canada) is at a 25-year low, and spending has decreased. Some of the industries that have been hit the hardest include automakers, manufacturers, construction, and, of course, the housing market—to name a few.

But it's the retailers that we're looking at in this article. For them, it's not as easy as turning to financial aid programs such as the United States (US) Government's Troubled Asset Relief Program (TARP)—which helps participating institutions stabilize their balance sheets and avoid further losses during difficult times. This program, however, is only available to financial institutions.

Companies like Circuit City, the Bombay Company, and Sharper Image have declared bankruptcy (Chapter 11 filings), while bigger stores like Costco and Wal-Mart are weathering the storm by focusing on what they do best—offering great deals on everyday products. Consumers are looking for bargains, so they'll seek out retail outlets (often big-box stores) that can offer them the most product for the lowest price.

Some companies are taking a different route by restructuring. Unfortunately, with the banks tightening their belts on credit offerings, these businesses are finding it difficult to get the financing they need.

What's a Retailer to Do?

In an economic downturn, there are only two options—sink or swim. If you're a business owner who's ready to don your life jacket and hang on for the ride, here are some high-level business strategies that you might want to consider to help improve your company's performance—and bottom line.

  • Customer Service and Satisfaction
    • Pamper your customers with service
    • Inspire them with innovative products
    • Foster increased loyalty
    • Communicate brand trust
    • Create a marketing campaign with a focus on sensory stimulants such as visualizations, sounds, scents, and touch

  • Salesforce Productivity
    • Provide customers with a great shopping experience
    • Ensure your salespeople are working at maximum performance level
    • Provide training to your sales force by keeping them constantly updated with changing trends

  • Reducing Costs/Cost Management
    • Use technology as a way to cut costs
    • Create opportunities to produce innovative products at low risk
    • Provide "pop-up retail" opportunities

  • Online Opportunities (E-commerce)
    • Provide customers the ability to shop online
    • Integrate online and off-line channels into true multichannel offers

  • Technology/Innovations
    • Implement radio frequency identification (RFID)
    • Introduce digital signature capabilities
    • Offer self-checkout and payment through innovative ways, such as mobile devices, fingerprints, and RFID checkout terminals, etc.

For Those That Get it: What Have Retailers Learned?

What have retailers learned through these trying times? I've noticed that retailers are making improvements by

  • using lean techniques to reduce unnecessary costs and minimize waste;
  • providing better customer service;
  • providing better-quality products;
  • offering better pricing and discounts;
  • creating more focused marketing initiatives;
  • offering online shopping channels.
The more promotional campaigns you create that are designed to suit your niche customer groups, the faster you'll be able to get those customers into your store—and the less likely they'll spend their money in your competitors' stores.

The Internet—What Role Has It Played in Keeping Retailers Afloat?

Recent studies show that the Internet has—and continues to play—an increasing role in our daily lives, whether for work purposes (sending e-mail, doing research, etc.) or for personal pleasure (online chats, social networking, and online shopping). In fact, despite the economic downturn, the area of e-commerce (especially) is expected to remain strong over the next year.

The truth is that the Internet has become a far more cost-effective channel than the retail stores themselves. According to the Office for National Statistics in the United Kingdom (UK), the Internet generated 3.5 percent of the total retail sales (£238 million) in December 2008. In the US, according to Internet Retailer, "Web sales were responsible for 20 percent of the growth in total retail sales last year while accounting for about 6.5 percent of sales." It goes on to say that "Web sales across the board added up to $178.18 billion (USD) in 2008, up $7.7 billion (USD), or 4.6 percent, from $170.41 billion (USD) in 2007."

With that in mind, let's take a look at the consumer: what are they looking for and how have their spending habits changed?

The Consumer

The Customer Experience

"A good customer experience is essential for continued business growth—after all, without customers, you have no business!" I'm not sure where I heard that, but—to me—it makes perfect sense. When customers shop, they want the experience to be a rewarding one. It's no longer about getting the perfect outfit or the best stereo system, it's about getting a good quality product, fast, for a fair price, from a trusted brand name.

There's a great article about the customer experience in which the author, Bruce Culbert, talks about the importance of listening—and learning—from your customer.

By understanding what their customers want, retailers can improve on product quality, customer service, and more. Social networking and Web-site feedback are just some of the techniques retailers are using to drive consumer traffic. Without this channel, many retailers would probably be reporting much lower annual revenues than they are.

What Have Consumers Learned?

From a consumer perspective, the recession has forced us to rethink the way we spend our hard-earned dollars. We now

  • pay more attention to prices;
  • clip and/or use coupons;
  • shop for "no-name" brands versus "name" brands;
  • shop less at convenience-type stores and more at club and dollar stores.

Buying Habits for Companies Looking for Retail Solutions

What about consumers of business solutions? Have the chief executive officer (CEO), chief technical officer (CTO), or IT manager of organizations also put a hold on spending, or are they spending on technology as a way to help increase their profit margins?

It's fairly clear-cut that the recession has taken its toll on the retail industry, but what effect has it had on retailers' software selection plans? Has the steady decrease in revenues prompted retailers to halt their efforts for technological improvements, or has it been the contrary? Let's find out.

Using data compiled from Technology Evaluation Centers' (TEC's) user preselection questionnaire (now known as TEC IT Advisor), I've put together a graph (see figure 1) showing the number of retail-related software evaluation projects that have come through TEC's Retail Evaluation Center over a three-year period. The data gathered clearly shows that prior to the beginning of the latest recession and through to the present day, the number of retail-related software evaluation projects has decreased. If we assume that hypothetically the number of software selection projects for the of rest 2009 will roughly double the number that has already taken place, the total projects for 2009 would then be 1,504, which is a 13 percent decrease from the previous year (2008) and a 15 percent decrease from two years previous (2007).

Figure 1. Number of TEC retail-related software evaluation projects.

Technological Innovations: Retail Solutions at a Glance

Retail systems are the enterprise back- and front-office software solutions upon which the majority of retailers rely to manage and support their daily tasks. These systems typically record product performance, which allows the buying personnel to make accurate merchandise purchasing decisions. Moreover, retail systems have capabilities for tracking inventory, capturing sales data, managing retail prices, and much more.

Some of the improved efficiencies we're seeing in today's retail operations and the supply chain are largely due to technological innovations (i.e., RFID, digital signatures, and more). This is over and above what the Internet has done for the retail industry. Today's technology allows faster, easier, and more closely targeted communication with consumers than ever before.

And although the investment in such systems can be costly, there's no doubt that the increased efficiency they provide can help retailers survive during the economic downturn. And because technology can provide a competitive advantage for retailers, when the market begins to improve, those that have invested in it will be the first to reap (and maximize) its benefits.

An example of how one company took innovation to the max is The METRO Group Future Store Initiative. This initiative is a project including more than 85 partners from the retailing, consumer goods, and IT sectors. The idea behind it was to pool resources from different areas of expertise to create the "ultimate shopping experience." Its real,- Future Store is located in the small town of Tönisvorst, Germany and offers its customers everything from soup to nuts—and bolts! Together, the initiative's partners are setting new technical standards and developing ground-breaking concepts for use in tomorrow's retailing.

Here are a few retail-related solutions that you may want to consider for your next software selection.

You might also like to check out Retail Info Systems (RIS) News' Software LeaderBoard 2008, for a comprehensive list of the top vendors of retail solutions for 2008.

Conclusion

While the recession has wreaked havoc on the retail industry, what I'm seeing from retailers is a mixed bag of strategies that have either helped—or hindered—their chance for survival. With the proper strategies, the latest innovative technology, and a little bit of luck, I'm certain your retail business will weather the storm just fine.

 
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