As the mood of economic belt-tightening settles in, numerous strategies can be utilised to maximise retailers' returns, writes Jeff Rogut, executive director of The Australian Centre for Retail Studies (ACRS) at Melbourne's Monash University.
This could be just another article confirming how tough retail is. But those of us involved in the industry already know that, and we read about it in every newspaper or hear about it in news broadcasts. So, let's rather take a look at what the opportunities are that retailers may embrace during coming months and into 2009.
Retailers are a resilient lot, and we have seen similar downturns before - think of 1929, 1987 and 2002. Yet retail survives, for the most part; new entrepreneurs rise, new concepts are born, retail networks expand and the fittest grow.
A study recently completed by ACRS and commissioned by advertising agency The Foundry to show the consumer climate just prior to and after the Government's $10 billion financial package in October asked this question:
"When asked how you are getting along financially these days, would you say that your household's financial well being is better or worse than this time last year?" Over 50 per cent of respondents felt that they were either somewhat or much worse off than last year. Only 13 per cent felt that they were somewhat better off financially.
And the overriding sentiment amongst consumers was uncertainty. In terms of economic conditions in Australia as a whole, 69 per cent of respondents believed that we would experience uncertain times in the months ahead. Only five per cent felt that there would be good times ahead financially.
Consumers were changing their spending habits in response. When asked about how customers had changed their shopping habits, top responses showed they had: cut out more expensive items; reduced overall shopping spend; bought less expensive and private label products and shopped around more for deals.
And the economic stimulus package does not, as yet, appear to have had a major impact on spending intentions: When asked whether the recent $10.4 billion package would influence their spending in 2008, 53 per cent of customers said that it would remain about the same, and only 14 per cent said that they would spend somewhat more.
From what we have seen, consumers have money but are far more prudent about how and where they spend it, and this is the opportunity for retailers.
Retailers must therefore consider the value proposition they are offering their customers, with value being far more important in purchase decisions than price. It is the shopping experience - service; ease of transacting; differentiation through new designs and concepts; exclusive offers, private label products and value for money - that counts.
Are retailers really thinking about how to defend and grow their businesses? Do they really understand their customer's mood right now, in terms of what they are looking for and how to satisfy their needs? Or is it business as usual?
While this is a time for challenges, it is also a time for opportunity and new thinking. Who are the new designers that may have appeal and will differentiate the retailer from the rest? Are retailers using the internet - one area of solid growth, with estimated online sales in Australia now worth around $14 billion - to appeal to time poor and tech savvy customers?
A recent projection had online spending on clothes estimated to reach £3 billion (around $A7 billion) this year in the UK, equating to six percent of the total market. Online retail is certainly an opportunity locally and one which few major fashion retailers are seriously engaged in. Research conducted by ACRS for Google Australia indicates that around 50 per cent of consumers research online before purchasing in stores - a multi-channel opportunity certainly not to be missed, particularly when every sale is important. Drivers of online growth are convenience, access to a wider product range, and the time and cost saved by not having to drive to the shopping centre - particularly with petrol costing around $1.40 per litre.
Finally, the last thing retailers may be thinking about as they look to survive in tough times is sustainability, the environment and ethical sourcing. However, these issues will not "go away" and retailers do need to embrace change for the future. With major global retailers such as M&S in the UK, and Wal-Mart in the US committing vast resources to sustainability initiatives because it makes good business sense, local retailers do need to adopt such efforts going forward; and they can be positive contributors to the bottom line. The ACRS has just released a comprehensive report titled Environmentally Friendly Retailing which highlights global trends and case studies from major retailers including Zara, Tesco, Sainsbury's, M&S and many more and provides invaluable insights into world's best practice.
There are always opportunities for retailers, but as times change so must their thinking and their deep understanding of customers' needs, particularly as they become increasingly less brand loyal and more value conscious.