NEW YORK (AP) — The Great Recession and Americans’ retreat into thriftiness are teaching retailers a lesson: how to survive when consumers are focused on needs rather than wants.
For years, shoppers splurged on everything from $5 lattes to $200 jeans, and retailers responded by opening more stores and offering more choices. Now, beset by high unemployment and limited access to credit, shoppers are limiting most of their purchases only to essentials or the best deals.
Retailers’ first response to the pullback in spending last fall was to offer deep discounts and more coupons. But to survive over the long haul, the watchword for stores and product makers is small.
They’re stocking shelves with slimmed-down milk jugs and half-size pies and charging less for stripped-down products such as blouses with less-frilly designs and detergents with less powerful cleaning action. Brands are disappearing, too. Some stores are being reduced in size if not shut down.
The changes are likely to last for years. Even when the economy improves, it will take years before the debts that piled up during the decade-long shopping spree are paid off. Americans also are getting used to their newly adopted frugal habits of saving more and spending less.
“I don’t think we are going to go back to business as usual,” said Steve Sadove, chairman and CEO of Saks Inc., operator of Saks Fifth Avenue.
As companies woo buyers, shoppers are finding they’re in control. And they’re driving hard bargains.
Renee Bello, a real estate broker in Sandwich, Mass., is enjoying the bombardment of store coupons, more lower-priced products and better quality in store-label merchandise, particularly at grocery chains.
“I definitely feel I have power,” said the 54-year-old who has been able to grab coveted brands and high-quality groceries even though she’s cut her spending in half because of economic uncertainty.
For retailers, the changes need not be devastating. In fact, those that survive will be leaner and more efficient.
“There’s nothing like a good old-fashioned recession to make you run a better business,” J. Crew Group Chairman and CEO Millard Drexler said recently.
To stay in business, stores find they can’t take big chances with what they put on the shelves and how much they stock of each item.
Merchants are keeping less stock on hand and delivering goods into the store more frequently instead of having items sitting on the shelves for months. Retail executives hope the strategy will help reduce aggressive discounting.
The long-term goal is for merchants to carry 1˝ months’ worth of inventory, compared with 3˝ months in the past, retail consultant Burt P. Flickinger III said.
Apparel companies are focusing on the most popular colors instead of oddball hues. And plain styles were prevalent at last week’s apparel industry trade show in Las Vegas; shoppers won’t buy tops or dresses with seasonal designs because they want to wear the clothes year round.
Manufacturers and retailers that held firm on pricing a year ago to try to protect their brands have felt the sting.
Price cuts are painful, so manufacturers and retailers maneuver to avoid them by identifying goods with strong demand. If they must cut prices, they cut costs, too, to maintain profit margins.
Retailers also are throwing out their devotion to premium brands. From Best Buy’s private-label televisions to Kroger’s pizzas to house-brand men’s shirts and sports coats at Saks Fifth Avenue, stores are putting more stock in store-label products, which cost less for consumers and tend to be more profitable.
This year, 37.5 percent of business is expected to be from store brands, according to a survey by the National Retail Federation. Two years ago, that figure was 26 percent. The share could go to 50 percent in the next few years, said C. Britt Beemer, chairman of America’s Research Group.
Consumers’ focus on value and saving money has shaped how products are marketed as well.
Sellers are becoming more sympathetic to consumers’ woes in their ad campaigns, a big shift from past recessions in which they focused on price cutting.
These days, higher-priced products are advertised as money savers or ads tout their practical attributes like fuel efficiency instead of emphasizing prestige.
Consumers aren’t going to be “hyped” to buy merchandise anymore, said Konheim, of Nicole Miller. They want to be convinced they’re getting more value.
Marketers are vying to be remembered as “the companies that helped see us through” the hard times, said Julie Winskie, president and chief client officer at public-relations agency Porter Novelli.
Chains have cut the number of stores they operate and have shut down unprofitable offshoots that sought to slice the consumer pie into thinner and thinner pieces.
About 143,000 stores closed last year, the highest number since 2001, according to an analysis of government figures by Michael Niemira, chief economist at International Council of Shopping Centers.
He predicts 140,000 more will close this year and 135,000 in 2010. That will worsen the already gaping holes in malls throughout the country.
Suzanne Mulvee, senior economist at Property & Portfolio Research, expects mall and shopping center vacancies could reach 19.7 percent this year and rise to 20.2 percent in 2010. A healthy market would be about 14 percent.
