Experts: Retailers Must Adjust to Cautious Consumers
By David Gill
Drastic reductions in employment, housing values, stock values and credit availability are all part of the "new normal" in retailing, according to Allen Questrom, former chairman of Federated Department Stores and J.C. Penney.
Speaking at the Issues & Solutions Conference hosted by Emanuel Weintraub Associates earlier this month, Questrom--now a senior advisor to Lee Equity Partners--said these elements have made the current environment "totally different from recessions of the past." He also said they--along with expected tax hikes to pay for the federal government's stimulus package, health-care reform and the cap-and-trade bill to reduce greenhouse-gas emissions--would combine to produce a slow recovery by taking money out of consumers' pockets, thus making consumers more cautious about shopping.
"Look for slow growth over the next five, 10, 15 years or you're not playing with a full deck," Questrom said. "You'll feel good if you get sales increases of 2 percent a year."
Questrom also said discounters would continue to increase their retail market share, and that Walmart will eventually be a $1 trillion company. (Questrom is a member of Walmart's board of directors.) The world's largest retailer will continue its sales growth largely because of its international presence, especially in China, which presents a "huge opportunity," he said. "China will be the world's largest economy in the next dozen years, and Walmart has already figured out how to be competitive there as the low-cost retailer."
The program also included presentations by Stephen Sadove, chairman and chief executive officer of Saks Fifth Ave.; Peter Sachse, chairman and CEO of Macys.com; Susan Lyne, CEO of Gilt Groupe and former president and CEO of Martha Stewart Living Omnimedia; Marshal Cohen, chief industry analyst for NPD; Jeff Klinefelter, senior research analyst for Piper Jaffray.
"The economic crisis has accelerated a couple of trends," Lyne said. "First, more and more retail sales are going online. We are expecting a very strong holiday season this year. Second, (apparel) brands are making their products better and better in quality, and are looking to draw a higher percentage of the younger population. Young men and women who are highly fashion conscious but can't afford to pay full prices for luxury brands are increasingly a marketing target for us. Our mission is to offer these younger consumers luxury at irresistible prices."
Sadove said Saks is approaching the "drastic decline" in luxury retailing with a store-by-store marketing model in which assortments are determined at the store level, rather than throughout the chain. "We are changing our selling environment by building one-on-one relationships between customers and the sales associates," he said.
Sachse said the recession presents an opportunity for retailers "in a more meaningful way." He placed particular emphasis on the rise of social-networking sites such as Facebook and Twitter, and how they have enabled consumers to interact with retailers. Thanks to these sites, "the customer now controls the conversation and they have many things to say to us," he said. "We're on several sites, and every retailer needs to be on them."
Cohen said the economic downturn has brought a "new era of consumption. Consumers today buy based on need. They are trading off, spending on one thing instead of another. They are also looking at all channels at the same time."
Next year will be a year of recovery going against the "soft" numbers of 2009, Cohen predicted: "Consumers were spending beyond their means over the past five years. Now, spending will be cautious and will be about choice, rather than instant gratification."