Archive for the 'Consumer behavior' Category

Thoughts on the QVC-HSN merger

Here are some quick impressions that I posted on RetailWire about QVC’s plan to acquire HSN. “Home shopping” has lost its novelty — especially as TV viewers cut the cable cord — so the combined company faces some daunting challenges:

The initial benefit of the QVC-HSN merger comes from economies of scale in a mature segment. (It’s the same kind of play that Macy’s made for May Company several years ago, recognizing the lack of organic growth in traditional department stores.) But it’s clear that home shopping (via TV) is not where the action is. It’s up to QVC to figure out how to translate the “treasure hunt” experience of off-pricers to its model, and especially how to engage mobile shoppers at its site. It becomes an urgent challenge as more consumers (especially younger ones) continue to cut the cable cord.

Stagnant growth of loyalty programs

RetailWire panelists discussed some new data suggesting that loyalty programs’ growth is slowing at several retailers. Here’s my take on why this may be happening:

Loyalty involves establishing an emotional connection between the retailer and the customer, in order to move that shopper from a state of satisfaction to commitment. But far too often, retailers’ loyalty programs consist of little beyond price incentives. Extra discounts for cardholders may drive more frequency of visit but also encourage bottom-feeding when “loyalists” can apply one sale offer on top of another.

Among many other uses of data science, retailers can do a much better job using predictive technology to tell their best customers about new products of interest — not just when those products are available at the lowest possible margin to the store.

Should customers pay extra for service?

RetailWire recently posted an online discussion — about whether customers will pay an upcharge for customer service — that triggered plenty of comment. My perspective follows, and it is based on the idea that there is more than one way to define “service”:

To answer the question, you have to define “customer service” differently for different kinds of retailers. Customer service at Nordstrom means “high touch” and the SG&A cost of providing it is covered by high merchandise gross margins (or it should be). Conversely, expectations of “customer service” at Target are totally different — shoppers expect store shelves to be well-stocked and checkout lines to be efficient. Again, this lower-expense model is reflected in tighter merchandise margins.

My point? Customers are already paying for the “customer service” they seek in the stores they choose, based on the “cost of goods sold” that they are willing to pay. Any surcharge imposed by retailers to meet or exceed these expectations (hidden or otherwise) would be a bad idea.

Outlet malls aren’t “overstored” yet

In light of the troubles at the regional mall, and the wave of 2017 store closings, it’s worth noting that outlet malls continue to flourish. RetailWire panelists had a recent chance to weigh in, and here’s my theory:

The growth of outlet malls over the past several years flies in the face of the conventional wisdom that brick-and-mortar retail is dead. Outlet malls provide the same kind of focus on “treasure hunt” and value that have kept companies like TJX and fast-fashion retailers performing well. They have the added cachet of multiple designer brands, at the same time that those brands are trying to clean up promotional activity in their department store accounts.

In fact, the proliferation of outlet malls (and their upgraded appearance and tenant mix) is one more issue making it harder for the traditional regional mall to tread water. But outlet mall developers need to be careful about overexpansion: There are up to a half-dozen outlet malls around the Chicago area where there used to be one. Part of the appeal of “destination shopping” will be lost of these malls become too commonplace.

Is the pendulum swinging back on early Thanksgiving openings?

I’ve argued for awhile that earlier and earlier Black Friday (or Thursday) openings are counterproductive. Here are some recent thoughts posted on RetailWire:

Some of the biggest players (Walmart, Target, Macy’s, Kohl’s, JCPenney and Best Buy) still plan to open on Thanksgiving. But the pendulum is swinging back, and the Mall of America’s announcement that it plans to close on Thursday will be a major influence on other mall operators. It seems clear that the push for earlier “early bird” hours on Black Friday (followed by midnight openings, followed by Thursday openings) has had a diminishing effect on sales — by draining any sense of urgency out of Friday morning shopping. (And the availability of goods online hasn’t helped, either.)

It’s hard for the retailers who insist on being open for Thanksgiving to be the first one to blink, but it seems clear that consumer sentiment is tugging them in that direction.

And this more recent post:

While the reports of the death of Black Friday are greatly exaggerated, there is no doubt that it’s lost importance on the retail calendar. The shift to e-commerce is part of the reason, but the bigger cause is retailers’ greediness in pushing their “early bird” hours earlier and earlier and finally opening on Thanksgiving itself.

My long experience working for a company that knew how to “nail” Black Friday tells me that the event was once as much a social occasion as a way to hunt for deals. Opening earlier and earlier never seems to result in more net sales but actually becomes counterproductive when any sense of urgency about “early birds” flies out the window.

Boomers’ spending: Less stuff, more life

It’s fascinating to join discussions (like the following from RetailWire) about changing consumption patterns. One of the biggest? Baby boomers like me:

Retailers will continue to have opportunities to sell products related to health, wellness and fitness as Boomers try to chase their imagined “youth” well into their 70’s. But the overall premise of the conversation is correct: Boomers seem to be less interested in accumulating more “stuff” and more engaged in travel, dining and leisure. (This can extend to consumption of technology, another opportunity for retailers.) Their disposable income is also being pinched by rising healthcare costs.

At some point most people decide to spend on life experiences “while they can” rather than more possessions, unless those purchases are for their children and grandchildren. But even multigenerational spending is likely to be geared toward family “experiences” in the future…not a new phenomenon, by the way, even though we Boomers think we’re the first to undergo anything.

NRF’s 2016 fourth-quarter forecast: Blue skies ahead?

I published the following comment on RetailWire after the NRF forecast a 3.6% sales increase for Q4 but before the outcome of this week’s election:

If somebody tracked the annual NRF holiday forecast compared to actual results, I think they would find that this trade organization is consistently too optimistic. I feel the same way about their 2016 number.

And does their number include surging growth by e-commerce retailers, especially Amazon, or strictly brick-and-mortar and multichannel retailers like Macy’s? There isn’t much evidence from the numbers we’ve seen all year (especially from midtier retailers) to expect a sudden surge in demand. Some retailers have especially easy comparisons to 2015 (which will help), but I’d be pleasantly surprised to see numbers beyond the 2-3% range.

And I’m adding a couple of other comments posted just before and just after the election:

Consumer confidence measures are rising, along with the GDP, but the rosy forecasts for 4th quarter sales still feel high. General merchandisers are likely to benefit from soft comparisons and colder weather than last year, but there is nothing in the sales trends so far this year pointing to a huge comeback. There also isn’t much evidence of a big merchandise idea or key item likely to drive customers to stores.

Without tipping my hand, I also believe that next Tuesday’s election results could provide a “relief rally” by providing some closure one way or the other. Of course, I said the same thing before the 2000 election…

Now, a post-election post-mortem:

I’m trying to set aside ideology here, because the split verdict on the election leaves voters uncertain on both sides. Will Mr. Trump live up to his harshest platform promises or try to moderate his views? Today, nobody knows whether the answer to that question will chill 4th quarter sales or stimulate them.

So the only way to answer this over the long haul is to look at the economic impact on consumers. Tax cuts and infrastructure spending are good for businesses and consumers but (on the other hand) protectionism and tariffs will lead to higher prices. And any effort to restrict (or reverse) immigration patterns will stall the population growth that our economy depends on.

Finally, the plans to “repeal and replace” the ACA may have a huge impact. On one hand, lower costs benefit consumers and small businesses; on the other hand, if millions lose insurance coverage they will face an economic threat that will crimp their spending for the foreseeable future.