Market analysts predict a very different retail landscape
2010 is looking up to be a pivotal year, one that many retail analyst and forecasters predict will mark a major historical shift in how retail is defined and conducted.
There’s definitely a cautious optimism in the air as most see consumers returning to buying as the U.S. and world economies begin “a slow and stubborn” rebound.
Although Christmas 2009 saw a rebound in spending from consumers, there are still some economic woes that lurk: looming high unemployment, tighter credit and deflated home values. ”Growth has resumed already in many parts of the world and the U.S. economy is turning up too, although it will take years to emerge from the great hole created by the Great Recession,” says Nigel Gault, chief U.S. economist at IHS Global Insight.
The National Retail Federation projects a 2.5 percent increase in total retail industry sales (excluding cars, gas stations and restaurants) due to positive signs in economic indicators. So, too, the International Council of Shopping Centers (ICSC) forecasts a 3 to 3.5 percent growth in sales this year, marked by “tighter inventories and fewer fire-sales that should help retailer profitability.”
Terry Lundgren, Macy’s ceo and chairman, recently expressed a positive outlook, too. “Consumers have more clarity today than in over a year in terms of their jobs, their financial status and their credit situation. I think the consumer is significantly more positive than in early 2009. The overall situation is easier to read. I’m not saying that it looks great, but we can plan for it to be better than we did in the past.”
While there are dozens of differing views on exactly what the new evolving retail landscape is, there’s one thing nearly everyone agrees upon: There’s a paradigm shift going on and those who dwell on past ideas and models aren’t likely to be around by the end of this decade.
“There’s a critical shift in the equation of retailing,” says Marshal Cohen, chief industry analyst at The NPD Group. “The truth is, traditional retailing has basically been the same since the 1600s. Retailers put merchandise on their floors, hoping the consumer comes in and buys it. Now the consumer wants to know more about a product’s attributes, how its image is portrayed in advertising, and they don’t want to swoon to part with their dollars.”
Accessories may be one of the businesses that have a strong chance of rebounding faster.
“Unlike previous times, when a consumer would buy her outfit first, then look for accessories to go with it, now she is looking at accessories first. Shoppers are buying investment pieces for the long term. Accessories are looked at as what keeps them fresh and updated. Accessories are in the forefront in the new decade.”
That’s good news for the accessories business but it’s far from business as usual. Consumers are more scrutinizing about spending, and with technology aiding in giving them greater access to information, product reviews, price differences etc., it’s going to be a lot more complicated to sell them.
A Less Conspicuous and Cautious Consumer
“There’s a new type of consumption entering: consumers no longer run to buy things, they think twice, asking themselves ‘Do I really need it? Can I afford it?’” explains Cohen, adding that marketing, design, promotions, etc., are going to have to change. “Retailers and manufacturers must make themselves and their products relevant—and exciting.”
Marni Shapiro, managing partner in The Retail Tracker, notes: “As the consumer gains confidence she will continue to look for value no matter where she shops. It’s likely to happen where shopping makes her feel good about herself, such as charity tie-ins like Haiti. But she won’t be spending first on herself—at least that’s what she tells her spouse. Children and family are the big entry point for spending.”
Mike Kraus, retail advisor for AllBusiness.com, a division of D&B, says an additional factor driving consumers is their ability to influence and dictate what they want, something that’s only going to get stronger due to the Internet. Kraus calls it “crowd sourcing,” where manufacturers and retailers introduce new products and then online communities or social networking sites vote on what they like.
Moreover, Kraus sees a return to Main Street. “Consumers want to connect and be a part of a community,” Kraus says. That means more emphasis on different products maybe from sources that are local or have a story to tell rather than Big Box retailing. This signals opportunity for smaller entrepreneurial businesses, many with a homegrown point of view. “Consumers are more interested in the source, what it means and the story behind it—something that sparks a conversation.”
Kraus sees retail lines blurring among restaurants, lounges, galleries, shops and service businesses like beauty salons and spas. Such “crash-up retailing” has cropped up in Southern California like The Bazaar by Jose Andres inside the new SLS Hotel in Beverly Hills, a European-inspired piazza with lounge areas, roving food and cocktail carts, spa services that create an atmosphere to dine and shop at the same time.
Hybrid Retail Concepts
One of the retail models that most intrigues many analysts is the Apple Store phenomenon. “It’s the new formula for retailers of the future. Apple doesn’t pile up 20 different products and colors. You get a display, you ask for the product and the staff tells you how to use it and what additional accessories or equipment you need,” Cohen says. Indeed product can be purchased at the store, online or on the phone 24/7. Such open-sell concepts are applicable to accessories, too.
Such hands-on retailing is a shift from the ‘bigger is better’ mentality. “There’s rethinking going on: maybe smaller and making a profit is better,” says Shapiro. Stores will get smaller and not carry as much inventory, while store-level inventory managers will follow local trends and respond. “Of course, this means improved distribution and fulfillment. She doesn’t want to schlep anymore. Why can’t she scan the item on her phone, and have the merchandise sent home to her? This isn’t the Jetsons. This technology is available now.”
Analysts generally agree that there’s less division between what’s online, in store or even on phone. “M-commerce”— using mobile phone applications while shopping or even to shop—is growing, especially among the Millenials, the youngest consumers who’ve been reared with new technologies. Larry Freed, president and ceo of ForeSee Results, says that while M-commerce is relatively small compared with Europe and even Asia, it’s a growing market where pure play Internet retailers like eBay have had 300 percent increases in mobile sales.
“Consumers are already comfortable shopping and scanning for information, and comparative shopping,” says Freed, whose company produces the e-tailer satisfaction index. “It behooves retailers to adapt to this technology and offer more point-of-sale technology to help consumers find and educate them.
In his company’s latest retail index, 40 of the top online retailers were scored on a 100 point satisfaction scale. Amazon leads the pack with an index of 87. Macy’s, Sony, The Gap, Home Shopping Network and QVC sites garnered the most—a 10 percent gain over the previous year. Freed says retailers who fall below a 69 index risk losing market share and sales for their brick and mortar as well as online business.
One of the first retail businesses that expect to rebound this year is the luxury sector. “A return to spending is all relative,” says Paula Peterson, a luxury retail analyst with Crown Luxury Consulting. “The affluent move more rapidly back to spending than the mid market. However, we’re not going to see luxury brands recovering at the same rates. The smaller and more flexible retailers and manufacturers who have a pulse on their businesses have an advantage.” The ICSC predicts the luxury market will rise from 6 to 8 percent this year, a substantial increase but not one that brings the business back up to even 2007 levels.
Shapiro says although the luxury shopper may be sending positive signals, there’s hesitancy. “Real luxury declined due to guilt—not that she didn’t have the money—and I expect it will rebound first. ‘Accessible luxury,’ like Coach and J. Crew, is helping to spark sales, but I don’t suspect she’ll be spending at the same level anytime soon.”
But have the entry of more accessible pricepoints hurt the rarified luxury sector? Not necessarily, says Peterson. “Secondary or diffusion brands are good vehicles to attract younger consumers and a new audience, but they must maintain integrity. Too many luxury brands have confused this—offering product at interior standards, especially in manufacturing.”
According to the Luxury Tracking Study conducted by Unity Marketing, the luxury consumers’ confidence ranks about the same level it was in September 2007 as the recession began to drag the index down. Pam Danziger, president of Unity, notes, however, that 80 percent of the affluents feel the country will remain mired in recession that won’t officially end until 2011. “While cautious about the world at large, affluents feel more empowered to spend money,” she adds. “Affluents spent about 50 percent more on clothing, accessories, travel and spa, beauty and massages in fourth quarter 2009 than they have previously.”
Changes to the luxury market include:
• Two key segments emerge in luxury: the ultra-affluents ($250,000 and above) and younger affluents (40 and under) Danziger says. “While ultra affluents make up only 2 percent of entire economy, their spending has increased 30 to 40 percent. Young affluents, however, outspent their elders 2.5 times in fourth quarter 2009. They’re in an acquisitive life stage with a strong appetite for luxury goods.”
• Wealthy consumers are now more likely to seek advice and recommendations from their peers rather than luxury brands’ own messages. Milton Pedraza, ceo of The Luxury Institute, says 7 out of 10 wealthy consumers participate in social networking websites.
• Expect more of a lifestyle collection approach to luxury brands. “Expanded shop-in-shop concepts that show a mixture of categories in apparel, accessories, home, etc., says Peterson.
• Smart luxury companies are redesigning efforts for consumer data collection to help reinvent the consumer experience, Pedraza says.
• More collaborations among major luxury labels and hotels, when such meeting of the minds reinforces the brand’s authenticity, Peterson adds, “like a Ralph Lauren resort in Jamaica or John Hardy in Bali.”