Retailers Adopt New Strategies for Tough Times

With economic growth slowing to a crawl, expect some changes at your favorite mall.

By Laura Kennedy, Researcher-Reporter, the Kiplinger letters

January 23, 2008

As consumers hold wallets tighter, retailers are gearing up to work harder -- and smarter -- to survive what's likely to be several months of hard times. Retail sales are expected to grow only about 2.5% this year, and store traffic will be especially anemic over the next six months.

What changes are consumers likely to see? Fewer choices, for one. Retailers will keep a very close eye on which products are actually selling and focus efforts on those items, making sure they have all of the colors, sizes and varieties of the most in-demand goods. Otherwise, they'll be forced into big markdowns on leftover inventory that will further deplete their bottom lines. Even grocery stores, which are losing traffic to discount warehouse outlets, will advertise and push fewer items, according to Britt Beemer, chairman of America's Research Group, a retail consulting firm.

Expect more discounts, but retailers won't go overboard. In hard times, it's more important than ever for stores to avoid slicing too deeply into profit margins. And holding too many sales makes buyers feel they can always wait until the next time.

Stores will concentrate heavily on their core consumers. Specialty apparel and department stores are already mining their libraries of consumer information to market directly to their best shoppers. Coupons and specialized discount offers will draw customers into the establishment. Stores "should try to retain the core and get them to spend more," says Leon Nicholas, a consumer markets analyst with Global Insight, a business consulting firm. That means they'll take advantage of direct mail or e-mail rather than more-costly advertising to the general public.

There will be less sales staff to help consumers. Stores are being advised to study traffic patterns and to avoid scheduling more salespeople than conditions warrant. Staffs are already thin. Retail hiring for the 2007 holiday season hit its lowest level in four years, and the traditional post-holiday purge this month and next will likely eliminate more positions than were created prior to the holidays. But experts warn retailers not to go too far because there will be a premium on customer service. "Service is a whole new game," says Marshal Cohen, chief industry analyst for the NPD Group, a market research firm. "It's no longer expensive in a downturning economy, it's priceless. That is going to be the great differentiator." Retailers will use online channels to enhance their customer service efforts as well. For example, a direct-mail discount offer to a frequent customer can make that shopper feel special.

Stores are also paying more attention to their environment so stressed shoppers don't feel pressured. Late last year, consumer confidence reached its lowest point since 2005. With more negative news on housing and jobs as well as higher energy prices, it's unlikely they're feeling much better. Retailers are being advised to let shoppers know they understand their concern about prices and even with smaller staffs and inventories, to emphasize service and selection, and not to push too hard. "Retailers have to call out to people and say, 'This is a safe place. We'll help you,'" says Wendy Liebmann, founder and president of WSL Strategic Retail, a marketing consulting firm. It's the sort of thing that can be done through marketing or special attention in the store, Liebmann says.

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