We’re all doomed. According to some of the more alarmist news publications,
we in the UK are plunging headlong into a recession which will have families out
on the streets and so on and so forth. No one will be able to afford to pay
their astronomical fuel bills and spiraling mortgage costs, let alone having
cash they could call ‘disposable’. A nation is headed to the Poor House.
Granted, the general consensus seems to be that we’re in for at least two
years of relative hardship – relative, that is, to a decade of constant growth,
cheap credit and cheaper consumer goods. An entire generation has grown up
viewing saving less as a necessity, more as something you do if you can’t quite
squeeze that 42” plasma TV onto the Visa card. The expectation that the profit
on one’s house would accommodate one’s retirement plans was not uncommon amongst
a certain demographic.
Naturally, the knee-jerk reaction to this news is to expect an abrupt halt in
consumer spending, sending the retail industry into chaos and turmoil. It’s
clear to see that with credit becoming more expensive (and harder to obtain),
and the heaviest spending demographics being forced to live within their means,
less will be spent overall. More interestingly, from my perspective, will be the
trends developing within what continues to be spent. Looking for a silver
lining, if you will.
Let’s look first at some early signs from the high street. A few months ago,
Retail Week announced both Faith’s
slide into administration, and Thorntons’
20% year-on-year increase. Zavvi are also bucking the trend, showing a 10%
like for like increase, with strong performance within the DVD and games
categories. French Connection is showing signs of strain, posting an H1
operating loss £1m greater than in 2007, whereas Debenhams is outperforming the
market with a year on year drop of only 0.9%.
Across the board, the picture’s clear:
- ‘At home’ is being preferred to ‘out’, both in terms of eating,
entertaining and watching films.
- Whilst shoppers are increasingly price-conscious, they are still spending.
They are more prepared to shop around on price and deals, and will go that
little bit further than in previous years. Convenience is becoming a luxury in
itself.
- Trading down, especially in terms of the FMCG market, is a growing trend,
but importantly only within certain ranges. For example, a Tesco Finest shopper
might move down to core range, potentially to value, but relatively few of them
will actually move to Aldi or Lidl. Those who typically buy branded goods will
begin to move to own-brand.
- The home is becoming increasingly important. Partly as a place to entertain
(cheaper than going out), partly out of a need to maintain a basic sense of
security in uncertain times. A lick of paint here and some new plants there will
keep up appearances.
- Fewer holidays will be taken. There are suggestions from some parts of the
industry that we’ll be seeing a move back to the old trend for one ‘summer
holiday’ a year, rather than numerous short breaks.
- With Christmas around the corner, more creative ways are being sought to
keep the standard up to what we’ve come to expect; saving, buying in advance and
so on. This year, at least, it’s unlikely customers will skimp during this
period unless they literally have no option.
- Treats and luxuries are still on the shopping list, but they’re of lower
value than in previous years (ie chocolates, rather than new shoes).
So what do these emerging trends mean for a retailer? With the UK’s once
profligate consumers battening down the hatches, how does the retail industry
weather the storm? The truth is, there’s no silver bullet, and if I had it I wouldn’t be writing
it on an open forum like this. Some businesses will be inherently exposed to the
worst the recession has to throw at them. Others, particularly those in the
discount sector, have a significant opportunity. For the majority though,
observing a few simple points will see significant rewards:
- Manage costs and reduce wastage. It sounds obvious, but when applied
to investing to move a business forwards, it’s a little trickier. Understanding
your customer in detail will help inform genuinely ROI-focused development, so
it’s worth investing a bit in order to get accurate information in a clear and
useful form. This exercise in itself should fuel user-centred
design across the business as a whole.
- Make the most of every customer. Another obvious-sounding point, but
one which few online retailers can answer with confidence. With hundreds of
thousands of users hitting your service every day, can you be sure that you’re
selling to each one in the best way possible? See
an earlier post for more on how to achieve this.
- Stick to your knitting. Now is not the time to be radically
overhauling the brand – as consumer confidence drops, it’s more likely to
alienate existing customers than attract new ones. Focus instead on the aspects
of the brand that appeal to the concerns consumers have.
- Avoid knee-jerk reactions. Marketing and development budgets are
easy to cut in the short term, but the long-term impact of these cuts is
expensive to rectify. This in itself represents a false economy. In adverse
economic times, those businesses who slash the very budgets their future success
depends on generally end up losing market share, often for good.
The rules of engagement are no different in hard times than they are in times
of growth. The only difference is that the price of poor business management
will be much, much higher in the coming years than they have been since the
early nineties.