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The New Retail Landscape


As the worst of the downturn appears to be easing, a new retail landscape is beginning to emerge—one full of challenges and opportunities. From ideas about who will drive the recovery to what categories and stores they will be shopping, changes in consumer demographics and behavior are reshaping the marketplace—and the recovery—in some profound ways.

“It will be back to normal to some degree, but not a wholesale return. The recession has changed some retail fundamentals, including who you should target,” said Lois Huff, senior VP, Retail Forward, at the company’s 2009 Strategic Outlook Conference.

One of the most important changes that retailers will need to address is the declining impact of the demographic group that has driven three decades of spectacular retail growth: baby boomers.

“Boomers led the way out of the past two downturns, and they had a tremendous impact on the current recession, but they will not drive the recovery,” Huff said. “The engine has run out of gas.”

With boomers largely relegated to the back seat with regard to the recovery, retailers need to tune up their Gen X appeal. The cohort (roughly 29 to 45 years of age) is entering its peak earning years and the “big spending” stage of life.

“Gen X will be much more important to the recovery,” Huff noted. “They are buying homes and feathering the nest—and 71% of this group have kids younger than 18.”

The other group that will be crucial to the recovery is Gen Y, or the Millennial Generation.

“Gen Y is younger, which translates into more discretionary income,” Huff said. “Also, this is the group that grew up with technology. For them, a tech lifestyle is a need, not a want. These are positives for retailers.”

But be warned: Gen Y is not an easy target. Indeed, the Millennials are largely a mystery to most boomer-run businesses, according to Huff.

“Gen Y is more fragmented than previous generations, with lots of small niches, which makes them difficult to reach,” she explained.

Difficult, but not impossible. Retailers can maximize their exposure to Gen Y by going after the emerging spaces they inhabit via such tools as texts and tweets. Such tools are low-cost and surprisingly effective, Huff said.

As to what consumers will buy going forward, Huff expects some categories to come out of the gate fast, while others will lag behind.

“This will be a staged recovery based on small- versus big-ticket items, and discretionary versus non-discretionary ones,” she explained.

The first stage of the recovery will see an above-average uptick in sales of food and other consumables. Stage two will see an increase in sales of small-ticket discretionary items, driven by both replacement purchasing and pent-up demand for indulgences and rewards. At the same time, there will be a recovery in sales of big-ticket appliances and other items whose replacement can’t be delayed, and of “needed” consumer electronics (CE) upgrades.

“This will be boosted by maxed-out product life cycles and a broader definition of non-discretionary CE,” Huff noted. “In many households, mobile devices, laptops, Internet and cable, game systems and the like are not discretionary items.”

The final stage of the recovery will be the return of big-ticket discretionary items, which will be delayed beyond “normal” by the housing and credit slumps. It will be boosted by the first wave of Gen Y setting up homes and, to a lesser extent, by the shift from hiring contractors for home projects to DIY.

Shopping behaviors: There is no question that shoppers have dramatically shifted their behavior due to the economic downturn, and not just in terms of being more price-driven. According to Huff, shoppers also have become more purposeful.

“It’s about solving problems, not just price,” she said.

Retail Forward identified three categories of recession shopping behaviors:

With the recovery, Huff predicts these behaviors will modify rather than completely disappear.

“Limiting behaviors will level off from severe limiting to mindful choices, and trading down will lose traction from rapid trading down to reasoned trading down, although private brands will still be a factor,” Huff predicted. “Rampant deal seeking will evolve into selective deal seeking, with couponing and bulk-buying among the behaviors most likely to stick going forward.”

Post-recession, retailers should expect shoppers to have a new mind-set, one that values ROI, or return on involvement.

“Deal-seeking shoppers will selectively invest time in order to get a big dollar return,” Huff said.

From online coupons to opt-in e-mails to comparison-shopping sites, the growing array of mobile/online tools are making it easier for retailers to increase ROI, and retailers should not be afraid to engage them.

Search-engine shopping is also part of the recovery mind-set as purposeful shoppers, enabled by everything from Google to online shopping resources to mobile phone apps, start the shopping process with products first.

“This means that retailers and brands have less of a chance at being considered,” Huff said, “and makes it harder to up-sell, impulse sell and cross sell.”

The recovery mind-set will also be one of pragmatic consumption.

“The recession has tempered both rampant excesses and overzealous idealism,” Huff said. “More ‘mature’ shoppers will seek the pragmatic, realistic, attainable and sustainable middle ground.”

The new mind-set provides opportunities for retailers to create solutions that address values (or what Huff calls value-added values), investment spending and practical pleasures.

“Values survived the recession,” Huff said, noting that one-third of respondents to Retail Forward’s ShopperScape survey still rate sustainability and responsibility issues as important.

Also very much alive is investment spending. Unlike wasteful, impulse buying, which is likely to have a stigma attached to it for some time, thoughtful, responsible spending is socially acceptable, according to Huff. Products that stress quality, timelessness and usefulness trump those that only promote luxury and ego.

Another area of opportunity is practical pleasures. Excess is out.

“Consumers are getting tired of sacrificing, but they have to balance budget realities with ego rewards,” Huff said. “So it’s more of a DIY versus do-it-for-me attitude, and a ‘good enough’ mentality versus the very best. Consumers don’t feel they need the very best anymore. Coach’s lower-priced Poppy line is really a ‘good enough’ version of its premium collections.”

Retail winners: As to where consumers will be shopping, there are winners and losers, and chief among the latter, according to Huff, is the regional mall.

“Mall shopping frequency has been in freefall for the past few years, and the recession exacerbated it,” she said.

The loss of many traditional mall anchors has also been a factor in declining traffic. And the fix that some developers have come up with, such as using nontraditional retailers—such as Cost-co, dining and entertainment venues, and offices—as anchors, has not fixed the problem, Huff said.

“These are destination replacements,” she explained. “They are stand-alone destinations that don’t drive mall traffic.”

Prospects are considerably brighter off the mall, where the winners include outlet centers, like Prime Outlets Orlando, pictured above, which are thriving despite being apparel focused. The pace of construction in the outlet channel is strong, with 38 new builds expected by year-end 2011, and seven expansions by year-end 2012.

Small-format value retailers are also thriving. Retail Forward research indicates that more than a quarter of consumers are shopping these formats more often, and that a good number of them plan to continue to do

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