March 19 2010
By Stevan Buxbaum
From www.chainstoreage.com
Economic distress tends to focus the mind. Not so long ago, many retailers were bullish about the strategic advantages they saw in making a so-called “flight to quality.” The idea was to respond to the bifurcation of the U.S. economy by focusing on the fast-growing upper-end, since the lower-end clearly belonged to Wal-Mart. This dynamic, of course, has changed in a big way. It is now more appropriate to talk about everyone falling off the same cliff than to focus on the divide between rich and poor. Clearly, smart retailers now understand that shoppers who once demanded hip, lifestyle-oriented and pricey products are now more likely to be clipping coupons and watching Suzie Orman than running up their credit cards at the local open-air lifestyle center.
And so they are doing their best to adapt. But just as the popularity of the movement toward eco-oriented marketing led some companies to engage in a bit of an overreach -- i.e., by making less-than-credible attempts to “green-wash” products and brands by touting them as helpful to the environment -- some retailers are now flirting with what might be dubbed “value-wash.” They are, in other words, masquerading as value-oriented chains without having made the hard choices necessary to make good on those promises.
There is danger in this. Yes, in an economy where price has become paramount for millions of Americans, focusing on value can be a smart marketing strategy. That strategy, however, must be backed up by actual in-store savings and a true commitment to value. Today’s consumers are more angry and skeptical than at any time in recent memory, and they have no patience for messages that lack veracity.
They also have just come through a holiday season in which retailers of all stripes offered liquidation sale-like discounts on nearly every category of merchandise. Some markdowns were so deep that consumers are asking themselves, “If they can give me these unbelievable prices, what is anything really worth?”
Little wonder, then, that the list of relative winners among national retailers over the past few months happens to be dominated by chains that have spent years building value-based brands -- names such as Wal-Mart, Ross Dress For Less, T.J. Maxx, and Marshall’s.
Wal-Mart in particular is on an absolute tear. The retail behemoth is synonymous with value, of course, and has done particularly well with such necessities as groceries. Its advertising campaign, built around the slogan “Save Money, Live Better,” is remarkable for its clarity, sincerity and relevance, and appears to be resonating with consumers who previously thumbed their noses at the chain. Although its U.S. same-store increases of 2.8% for the fourth quarter, 3.2% for the full year and 5.0% for February are hardly meteoritic, they’re still respectable considering that we’re in the worst economic slump since the Great Depression.
What can other retailers -- especially those that haven’t always made value a top priority -- learn from chains such as Wal-Mart, Ross, T.J. Maxx and Marshall’s? Most fundamentally, the importance of a clear message.
Other retailers will have to back up their value-oriented messages with dramatic action. The onus is on them to gain credibility with consumers by adopting value as an organizing principle. This will mean making operational improvements that enable them to lower their prices, not as part of temporary sales, but over the long haul. Residential real estate values and retirement account statements have all reset to reflect the new, post-bubble reality. Something akin to this must happen in retailing. Chains that wake up to this sooner rather than later will have a better chance of survival. Does this mean all retailers will have to remake themselves in the image of a Ross, T.J. Maxx or Wal-Mart? No. But they will have to find ways to offer noticeably lower prices across all categories. And they must communicate those changes in ways that resonate with shoppers, rather than cause them to roll their eyes.
Inventory-management will be critical. Fortunately, many retailers over the past decade have put sophisticated, SKU-based tracking systems in place that should, in theory, help them slash overall inventory levels and stock only those SKUs that are in high demand. Along the way, they might try to get creative with the value proposition. Shoppers, for example, still love the thrill of the hunt. Stocking stores with intriguingly merchandised, unexpected bargains -- “fun” areas with offerings that change from week to week -- is part of the appeal of dollar stores as well as such retailers as Ross and TJX’s T.J. Maxx, Marshall’s and HomeGoods chains. Customer-service training and in-store messaging, too, must be harnessed as chains work to make value a core part of their identities.
The challenges they face -- including, in many cases, competing with Wal-Mart on price -- are daunting. False promises won’t cut it. And there is no time to lose.
Stevan Buxbaum is executive VP consultants Buxbaum Group, Agoura Hills, Calif.
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