Retailers Have the Ball

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Experts say retailers have the advantage in today’s marketplace. Here’s why.
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by Manyesha Batist
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In recent years, retailers have been confronted by behemoth impacts on the marketplace, namely the global economy and the steep rise of the Technology Age. Both have drastically shifted the customer-retailer relationship as consumers have subsequently led by virtue of their lower budgets and quick grasp of technological advantages, leaving retailers to follow them for the sake of their profits and edge over their competition.

Now, experts say the tides are changing, giving retailers the upper hand in the marketplace. Nonetheless, retailers may still wonder what lies ahead. Will consumers confidently spend their hard-earned dollars? And, what trends will continue to impact retailers’ bottom lines and strategies?

[Image: thinkstock.com]

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Though experts chime in from every angle, some commonalities surface among their assessments of the changing cultures of consumerism and retailing. Experts seem to agree that consumers are still insecure about spending; that consumers are now shopping for value rather than price; that the luxury market is taking off; that technology is increasingly integral to retailing; and that consumers are starting to keep it local.

TODAY’S CONSUMER

Although consumers are beginning to treat themselves to a few small splurges, they’re not exactly seeking to extend their own financial stimulant to the economy, per se. So, as long as the economy continues to teeter between recovery and a slump, so too will consumers’ spending patterns.

“It [has a lot to do with] what’s going on in Washington,” says Pam Goodfellow, consumer insights director at consumer-intelligence firm BIGresearch. “The debt crisis [and] unemployment are really sticking points right now with consumers. It’s not that consumers are so concerned with their own gap personally, but seeing [the high] unemployment rate is worrisome. They’re worried that the economy is not getting back on track like it’s supposed to be.”

According to Goodfellow, BIGresearch’s September Consumer Confidence Survey revealed that only about 20% of consumers are feeling “confident or quite confident” right now—a September rating that is actually the lowest BIGresearch has seen since the survey started about 10 years ago. In a normal economy, 40% to 50% would be the expected consumer-confidence range.

It is safe to say, however, that consumer confidence has increased since the peak of the financial crisis. One of the key occurrences of that time, particularly within retailing, was the demand for the lowest prices across all goods categories. Whether consumers were out of work and spending only according to budget, or fearful of losing work and so focusing attention on savings, they shopped according to price. Now, though still financially strapped, consumers are more interested in what they will gain from their purchases.

“One of the really interesting things we’re seeing is that it’s more about buying for value rather than just buying the lowest price,” says Goodfellow. “During the recession everybody was really focused on the bottom line—how much they were spending when they were checking out. We were less focused on talking to sales associates about the benefits of a certain product. [Now] we’re looking for value, quality and customer service; those types of things have come back into play.”

What is value? Value has to do with the quality of a product. This might be its nutritional value, its potency, its durability or its ability to maximize whatever experience the customer is seeking from the purchase. Value may also involve consumers’ belief systems—ideas they hold about the environment or people in need—in other words, the causes they’re willing to support. It can also involve service.

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“It’s not just about price anymore,” says Goodfellow. “It can be service. For an online retailer it might be shipping. [It’s simply] other methods of making customers feel value and making them feel like the money they spent in the store was well spent.”

As consumers embrace value, they’re also opening up their wallets to a little fun. Maybe they can no longer afford impromptu shopping sprees or long, luxurious vacations, but they’re treating themselves again. Steve King, partner at Emergent Research, which analyzes the small-business economy, suggests that retailers see the trend as a marketing opportunity, positioning themselves as a place where consumers can reward themselves.

“We’re seeing a definite increase by consumers in mini splurges,” explains King. “Because consumers can no longer afford the big things—the vacations they used to have, the fancy new electronics or expensive clothes—instead they might buy a nicer item at Starbucks or buy a small item that is really a splurge and brings some psychic value at that point in time. We’re definitely seeing this idea of, I’m concerned about value and I have to keep my costs down, but at the same time when something happens I want to reward myself.”

The exception here, however, is the wealthy consumer, say experts. This consumer has greater disposable income and shops the luxury market. Retailers who target her—or who are interested in targeting her—should know that she is interested in value but has no problem spending substantially more than the average customer for what she wants.

“In the luxury market, we see a return to normal buying patterns. The way our economy has shifted, people who do well are continuing to do well. It’s the rest of the folks who are going to be value based,” says King. “As [a retailer] you’ve got to be very value focused or you’ve got to have something that appeals to wealthier customers.” He explains that value also appeals to wealthier customers, but it’s usually a combination of value and something else, “some sort of kicker that makes it attractive to wealthier people,” he says.

MARKET EVOLUTION

One shouldn’t assume, however, that because consumers aren’t watching every dime, they aren’t shopping wisely. Consumers added a number of shopping tricks to their bags when price was king, and though they’re no longer looking for the cheapest prices, they’re still interested in getting a good deal.

“Customers have become smarter shoppers, whether they’re shopping on their smartphones and comparing prices while in-store, [or] clipping coupons, comparing advertisements
[and] doing online research,” says Goodfellow. “So when consumers walk into a retailer now, they’re armed with the best knowledge possible, and [with the confidence] that they’re getting the best deal from that retailer—so they feel better about their purchases.”

Experts emphasize that consumers are now arriving ready to shop armed with online research—including product information and competitive pricing—and ready to use their smartphones. They’re running with the Digital Age—not against it—into the beauty store, the grocery store, wherever they’re headed. And stores should be running with them. “Retailers should accelerate their integration online and [in terms of] mobility,” says Karen Grant, vice president and senior global industry analyst for market-research firm NPD Group.

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“In general, mobile phones are increasingly becoming the remote controls for people’s lives,” explains King. “Any retail business needs to be prepared at two levels: 1) to accept mobile-payment technology; and 2) [within] the broader mobile commerce and mobile marketing space, there’s a growing number of applications that provide opportunities for retail stores; [particularly in] recurring customer relationships, and offers and specials via mobile technology.” This may involve text messaging customers to let them know that you’re offering “20% off tomorrow on selected items,” adds King. “You can do that with email too but chances are they’re going to be more likely to respond or be aware of something getting to their mobile phone.”

Retailers don’t need to run out in a frenzy, revamping their technological strategies however, says King. Mobile, in particular, is simply something that retailers should begin familiarizing themselves with and then begin integrating sometime in 2012. The urgency can depend on the city a store is located in. Is it a tech-savvy city? If so, then the owner may consider accelerating the process. “Starting in 2012, we’ll start to see mobile payments begin to take off. It’s a trend that probably won’t hit [retailers] hard until 2013 or 2014—but retailers have to start thinking about what it means when someone says they want to pay with their mobile phone,” he explains.

Mobility leads to location-based technologies, which is something else King foresees as a growing aspect of retailing. Location-based technology equates to consumers checking in their locations on a site, such as FourSquare, and retailers, for example, having the opportunity to offer consumers who are within proximity deals, etc., via their mobile phones.

Another opportunity that is becoming increasingly familiar is daily deals. “One of the exciting things about daily deals is that it brings together buyers and sellers in a more efficient way than in the past, in terms of local commerce,” says King. “It’s hard to find the right people to target in local business. You use flyers and talk to people, but there’s a lot of people out there who could potentially [patronize] your business who may not know that it exists. The nice thing about daily deals is that [the deal appears in people’s inboxes], such as: Try out this place to get your hair cut.” And prior to the email, the person may not even have known it exists, explains King.

King admits that there have been successes and failures with this particular retailing strategy. Businesses often got the shorter end of the deals. But his research leads him to believe that it’s all part of the maturation process. Consumers love it—and it will begin to work in businesses’ favor too, he asserts.

“The programs are getting more refined. They’re learning what works and what doesn’t work, the combination of more attractive pricing and better targeting.”

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Another developing concept is localism, notes King. The trend comes partly from individuals’ interest in reinvesting their funds in their own communities for mutual benefit; though not all partakers are driven by an altruistic motive. Some people simply need to save on gas. Still others, says King, have daily lives that are now more rooted in their own communities; for instance, people who telecommute and run home-based businesses. Whatever the case, increasingly more consumers may begin stumbling upon your store.

“It basically means that people are spending more time in their communities, buying more things locally and believing that doing so helps their communities,” says King. “There’s a whole buy-local effort out there that national organizations are pushing, and communities themselves are starting to see the value of that.”

Subsequently, marketing tactics can help steer shoppers to patronize local stores. Some ways of achieving this are by generating some positive Yelp reviews—an online platform that allows business reviews to be posted and reviewed—maintaining a website and registering the business with a few different search engines, such as Google, to garner placement in local search results, says King. “Google [now] really favors local search results. So if you type in ‘beauty supplies,’ you’re going to get the big beauty supplies, but you’re also going to get the ones where you live—assuming you’ve given Google permission to use your location, which most people unknowingly have,” says King. “Google is doing this because it’s what consumers want.”

Social media also is key to making consumers aware of your store and building relationships with them as they become customers. It’s a platform where retailers can extend their efforts in helping customers feel the intangible value they seek. Facebook and Twitter are now the foremost tools in helping consumers develop attachments to businesses. They provide platforms to present deals and offers, contests, discounts, sales, advice, and plain-old personality and promotion. Their accounts are also, generally speaking, easy to use and maintain. Many businesses may even have chosen them as substitutes for actual websites for a time. But experts expect that a time is fast-approaching when businesses will have to provide some type of Web presence simply to survive.

“The tech trends are changing. They’re just going to become more important,” says King. “Increasingly, I think without an online presence, beauty [stores] will start to feel that. Today, it’s probably optional; but longer term, it’s going to be a requirement.”

Fortunately, creating a website is no longer the expensive endeavor it used to be. Options are now available that make the investment a couple of hundred dollars. There are also solutions that simplify the entire process from design to maintenance. “It’s not a huge investment at all. Web technology has gotten to the point where you should be able to create a pretty nice-looking website,” says King.

“[And], the cost of creating a website continues to fall. It shouldn’t be cost or technical skills holding people back.”

[Image: thinkstock.com/Photodisc]

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RETAILER ATTENTION

So, how does the current state of consumerism affect retailers? “Now that we’re [returning to a] value trend, retailers can take some of the pricing control back,” says Goodfellow. “During the recession, consumers had the upper hand because it was all about price. And, especially in 2008, retailers had way too much inventory, [influencing a] super-high discounting trend. I think that taught consumers to really watch for sales, know their prices and make sure they’re getting a bargain when they buy something.” So, although retailers may still offer discounts today, they can offer a 30% discount over a 60% discount, explains Goodfellow. What’s more they can focus on providing customers with value by training their associates to really get to know their products and educate customers. In other words, they can use nonprice-oriented retailing tactics to win over customers.

Grant comments that in a similar vein manufacturers are also once again leading consumers. This means that instead of simply outputting product based on consumer demand, manufacturers are deciding what trends they want to drive consumers to. This tactic is important for retailers because it shows that consumers are open to ideas. So, this is a time in which retailers could playfully revise their retailing tactics. Such creativity might be key in also meeting consumers’ more demanding intangible expectations, suggests Grant. She emphasizes that retailers should be integrating components of the online shopping experience in-store.

“With all the research they’re doing online, the use of technology in terms of [the intersection of] online and the in-store visual displays and information is becoming increasingly important in driving the sale and engaging consumers,” says Grant. In particular, stores are likely to find success in taking some of what shoppers find appealing online—the efficiency, the product information—and integrating those components into their in-store shopping experience; essentially, liberating them to easily navigate the store themselves, while having personalized attention available to them when they’re looking for it, explains Grant.

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“It’s interesting,” says King. “When you go through the purchase-decision cycle that a consumer makes before buying something, it’s shifted dramatically in two decades. It used to be almost totally brand oriented. Today, it’s a combination of brand but with a lot of new influences, [such as] online influences and influences from social networks.” He further explains that this shift has weakened brand loyalty, making consumers more open to options and thus susceptible to a value focus.

But knowing who is especially partial to value and who is not, and which of the two represents a retailer’s customer base is going to be essential to a thriving retail business, experts concur. King emphasizes that classic middle-of-the-road businesses that sell average products are now taking a beating, profitably speaking, as the consumer pool increasingly splits distinctly between wealthy shoppers and buyers looking specifically for value. As a result, successful businesses will have to determine what end of the value-luxury spectrum they are catering to.

“It’s really important that retailers know their customers, their base,” says Goodfellow, “what drives people into their stores and who those people are.” She suggests that retailers take advantage of a customer or email list to connect with their customers to keep them for the long term. “What is key right now is for retailers to make customers feel good about spending in their stores and to make them feel appreciated,” she says.

Grant concurs that though retailers have the upper hand right now, they should not get comfortable. The relationships they build with customers right now may be the single most important determining factor in the future of their businesses.

“While business is doing well right now, [it is important that retailers] recognize the importance of staying in tune with the fact that consumers are still really cautious. It’s not a time to get comfortable,” advises Grant. “It’s a time to engage and continue pulling out every stop to make it work and in building relationships with consumers. Those relationships sometimes will be the difference in why consumers reach out to one store versus another, one brand versus another. So retailers finding ways online and in-store to build a relationship is going to be important.”

Manyesha Batist is editor and online editor of Beauty Store Business.