Shops must work harder to tempt wary customers

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When the recession first hit back in 2008, most people believed that by 2013 things would be back to normal. Well, we are now almost two months into the year and the initial indications are that this hope will be firmly dashed. The balance of probability suggests that 2013 will simply serve up yet more of the same: pressured consumers, low retail growth, higher retail costs and, consequently, even more retail casualties. The truth is that these characteristics are no longer exceptions; they are the new normal for retail and will probably be with us for years to come.

The sharpest change has come from consumers. In the ten years prior to the downturn most shoppers are profligate, splashing out on this, that and the other with very little regard to the cost. Times were easy, house prices were rising and credit was cheap. They all helped fund a boom time for retailers when annual spending growth averaged out at a very healthy 4.5% each year.

As we now know, the trend was not sustainable. As the downturn came along house prices crashed, credit became more expensive and scarcer, confidence dipped and the mindset of the consumer shifted accordingly. People’s reaction to the recession was to be careful, to cut back on their spending and watch the pennies more closely.

Almost six years after the financial shock of 2008, the consumer remains in a fairly fragile position. The pattern of consumption, however, has evolved: it has moved from being just about being careful to being considered.

Considered consumption is characterised by a shopper who is less concerned with the pure acquisition of products per se and is more concerned about the nature of those products and their real value. The considered consumer is less impulse-driven and questions much more before they buy. Do they really need the item they are buying? Why is it worth the money? What is the quality like? How long will it last? And so forth.

Inherent within this is the fact that considered consumption is a much more holistic form of purchasing. Considered consumers are not only concerned with the product itself, but are also concerned with the realities behind the product – the ethical soundness of the supply chain, the environment in which the product is sold, and the corporate responsibility of the company which sells it.

As a result, considered consumption is a slower form of buying behaviour. It is also less about volume purchasing – that is, buying lots of things just because they are cheap – and more about selective purchasing where fewer, perhaps more expensive, items are selected because of their quality or value to the consumer. As consumers become choosier, aggregate demand will continue to weaken and, comparative to historical standards, rates of growth in retail expenditure will be slower. Adapting to this slower growth will be a challenge for many of the big high street names.

The job of selling to consumers, of persuading them to buy, will become a lot more challenging. It’s reasonably simple to sell a television to someone who doesn’t already have one; to sell an enhanced television to someone who already has several TVs is significantly more difficult. The key for retailers, therefore, will be to make people want things that they don’t necessarily need. To do this requires different selling skills and business models to the ones many retailers have traditionally employed.

Part of the change will involve understanding the consumer and engaging with their values: a much more sophisticated form of selling than many in retail are used to – and one which carries with it far greater costs and risks than traditional methods of selling. The bottom line is that over the next ten years consumers will want less and retailers will need to work much harder to persuade them to buy.

For retailers, the first rule in mitigating the risks posed by considered consumerism is to have a strong, differentiated brand and “must have” products. The slowing in expenditure is not coming about just because of a decline in household incomes – an influence though that is – but also because of psychological factors: as such, many consumers will still be able to afford products they really want.

A second rule will be to engage with consumers far more. The days when retailers could put products on shelves and expect them to sell have gone.

A third rule is that retailers will need to adapt their business models to a slower growth environment. Some will need fewer physical stores than they used to, others may need to rationalise their product offer, others may move some of their operations to the comparatively lower cost online environment. Retailers that do not review and change their business propositions will be the ones most at risk of failure.

l Neil Saunders is director of Conlumino retail analysts