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Consumer Confidence Takes A Hit

Monday, July 6th, 2009

With June’s consumer confidence numbers in, it’s now clear that consumers have been beaten down by all the bad news: ongoing layoffs, lack of stability in the housing market, no lasting recovery in the stock market, rising gas prices and other rising costs. What optimism there has been for a quick economic recovery has quickly evaporated.

The consumer reaction is to continue to buy only necessities and not discretionary goods. As retail bankruptcies continue to get filed, those retailers that do sell products are responding by discounting their summer goods, even though their stock levels are lower than last year – at some major retailers they are anywhere from 10% – 20% lower. Many of these stores continue to be at risk of failure.

It’s clear that retailers are going to have to continue to re-tool and reposition their businesses, to focus on offering real value and uniqueness and – most importantly – focus on what their customers want! They also need to be really smart about their purchases and inventory levels.

The recession is leading to a new approach to how we shop and eat. Consumers will be wearing clothes more before having them cleaned and repairing them rather than replacing them. Women will be buying fewer brands of cosmetics. Eateries that don’t offer excellent value will find themselves empty at dinnertime. The face of retail in the US is going to look different a year or two from now – and not only because many of the familiar faces won’t be here anymore:

 Many retailers, from supermarkets and drug stores to high end specialty department stores, are cutting back significantly on the products and resources they carry. This could potentially give them more space for private label, which can improve margins. But it’s not foolproof. Customers who don’t find what they’re looking for may shop for it elsewhere.
 Some single-brand retailers are discovering they need to look outside their own brands for ways to drive customer traffic. Nine West bringing in “New Balance for Nine West” athletic shoes is a case in point.
 Other retailers are merging to find economies of scale: Syms and Filene’s Basement and Dress Barn and Tween Brands are two examples.
 Better/luxury retailers, such as Coach are reinventing themselves with new, lesser expensive product lines. Coach’s new “Poppy” line is substantially less expensive than it’s regular lined and aimed directly at younger, aspirational shoppers.

The good news is that, though consumer confidence was down in June, it was still higher than any month this year, except May. The recession, like so many economists are telling us, is moving towards a close by year end. I’m just not sure anybody is going to really notice. With job losses and bankruptcies continuing into next year, it’s going to be a slow climb back.