As the financial crisis looms across the world and people stand warily beneath its ominous shadow, to say that consumers are in a state of uncertainty would be putting it mildly. The one thing that is clear is the need to be cautious with spending – and many retailers may find themselves skimmed away in favour of leaner budgeting as a result. This necessitates adapting to a consumer base with a whole new attitude towards spending.

According to Meghan O’Brien of Iowa State University’s Department of Economics, retailers will need to be honest about their sales prospects and make some difficult choices to withstand the tough times.

“The first step is to analyse the inventory for the must-haves or staple items and then actively reduce the stock of non-essential items,” says O’Brien. “Next, retailers should set limits for ordering new inventory and plan for its ongoing management, presentation and marketing.”

O’Brien says another common mistake is to underestimate the downturn’s severity and duration, as any changes made late in the game are unlikely to be effective.

Sticking to these foundations is not easy, and achieving them involves comprehensive monitoring and analysis to realistically pull off. However, numerous tools are available to retailers that offer key strategic insights into the way consumers behave – and how to translate these insights into retail strategy adjustments.    

A complex array of research technologies exist to measure retailer performance, tracking everything from the number of customers going in and out of a store to the number of transactions that take place at certain times. New technologies can even record shopper interest, using sensors built into units and displays that measure movements and touch. 

“Modern retailers have to have the systems in place to know whether they are hitting the mark,” says Tim Denison, director of knowledge management with Synovate Retail Performance. “In downturns, success is all about capitalising on every opportunity, monitoring your conversion rates and adapting and refining tactics accordingly. Speed of feedback, flexibility to respond and intimacy with your customers, knowing what they are thinking and how they are likely to react are all imperatives.”

Product, value and service initiatives are all geared at maximising sales under slowing demand conditions. But aside from demand, there are two other elements that affect profitability: managing cost base and protecting margins.

This presents a dilemma for retailers – if they don’t pass these higher costs onto their consumers, it eats into their margins. However, if they decide to put prices up, sales could take a nosedive. Shoppers expect lower prices and heavier discounting from retailers in a recession, not the opposite.

For the successful retailer, managing margins is about setting competitive price points for staple and benchmark products and making them highly visible to consumers, whilst maintaining higher margins elsewhere.

During the economic recession of the early 1990s, retailers responded by turning to the customer to build greater relationships. This involved closely analysing transactional data, as well as researching motivations and attitudes via focus groups. The results led to new customer and product initiatives such as the launch of reward programmes and the introduction of category management – positive initiatives that continue to help drive success today.

In the UK, a few brands have actually grown during the downturn, largely by making the right adjustments at the right time. Home shopping company N Brown reported an 11.8% rise in revenue in October, following six months of strong, steady growth that N Brown’s Chief Executive Alan White attributes to consumer loyalty and major efforts to acquire new customers – including an investment of £5 million in customer recruitment. 

Maternity retailer Mothercare has also managed to bounce back, thanks to its low-cost franchise model and international growth into new markets to capitalise on higher birth rates overseas. In each case, more important than the product on offer is the brand’s ability to tune in with the needs of its customers.

In tackling the current downturn, knowing exactly what is driving the tills is the key to maximising the significance of each customer, and retailers need to be sure they supply the right products for the right people and provide them effectively and efficiently.

However, for some businesses, especially those traditionally dominated by silver-tongued salespeople on the shop floor, adapting to and applying the diverse wealth of research data may require a shift in the way they think and operate.

“We now have accurate tools to measure data and provide research insight based on the findings,” says Denison. “In the retail world, they used to say the ability to sell was something you’re born with. These days that isn’t as true, given the global network of retailers and systems, and this requires a change in mindset for many retailers.”

Digital dollars
For many consumers, online shopping is a welcome addition to retailing, bringing the items we want into our homes and providing an efficient and functional ‘find and buy’ shopping experience. For many more it provides the opportunity to research product choice, functionality and price comparison, arming the consumer with even more market intelligence for when they go to the shops to physically inspect the goods and to make their final purchase decision. In theory it is pretty much retail perfection. But even now, with a few years of online sales experience racked up, there are still a few bugs in the system.

“There is a natural assumption that offering an online service is a simple extension of a retailer’s offering,” says Tim Denison of Synovate Retail Performance. “While this is in part true, it demands very different skills, thinking and processes from conventional trading. In the past, some retailers were burnt by developing an online service too quickly, hitting problems over matters such as ease and speed of navigation for the shopper, out-of-stock issues, but especially poor delivery promptness and high return levels. It is not a matter of adding another part to the jigsaw, more a matter of starting another puzzle.”

And while online shopping may seem like the most powerful new weapon in the retailer’s arsenal, in many countries online sales still represent a very small part of retail. Though reported statistics are fairly high (because they include sales such as hotel and airline bookings, car rentals and the like), according to Denison online sales only account for about 3-4% of all sales in the United Kingdom. Nevertheless, they still hold an important place in the market. 

“It is certainly recognised now by retailers as a necessary channel to market and one which they treat with equivalent importance to a flagship store. It offers retailers the chance to offer customers a far broader product range available anywhere in a country, rather than just to a lucky minority able to shop at their largest stores.”