All Signs Point to A Tipping Point in Retailing

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They filmed a scene from the “Sex and the City” movie across the street from our office, in front of the Walter Steiger store, an emporium of sophisticated shoes and handbags any Carrie Bradshaw would die for. In early July, the store’s Park Avenue windows tactfully, but still pointedly, carried the following notice—“Sale 50% off.” Even the rich need incentives to shop.

Over the Fourth of July weekend, the stores inside The Westchester, the upscale mall in my hometown, shrieked 50% off. Even with “staycations” and less than spectacular weather, which should have driven more shoppers to the mall, traffic was light inside.

With each passing day of lousy (there’s no better word) economic news, my resolve is weakening. So I’ve changed my mind. Four months ago I cautioned the sky is not falling. While no chunk of cloud has landed on my front lawn, I do believe we’re now at a tipping point in consumer behavior and therefore in retailing. To validate, or refute, my hypothesis, I turned to George Rosenbaum, CEO of Chicago-based research firm Leo J. Shapiro & Associates.

“You are right about the tipping point,” said Rosenbaum. “We are now entering profound social change as a consequence of energy prices that will not only change the face of retailing but even where people live and work.”

Some data from Shapiro’s continuing studies:

  • One in eight homeowners with a mortgage or home-equity loan fears they may have trouble making their payments;

  • Trade-in values on gas-guzzler (less than 20 mpg) vehicles are collapsing;

  • In June about eight in 10 car owners had cut their driving. Now, they are forecasting driving about 2,000 fewer miles in 2008 than 2007. This follows a decline of about 9% in reported mileage between 2006 and 2007;

  • Americans have lost buying power. Nearly six in 10 households report their income is either flat (33%) or lower than last year (26%);

  • Job insecurity is near its peak with almost half of households saying there is a possibility of a layoff or loss of earnings;

  • Coupon clipping and visits to lower-cost food stores are on the rise;

 

  • Consumers are waiting longer before visiting physicians, they’re trying self-treatment (over-the-counter remedies), waiting for symptoms to go away, going to retail clinics and insisting on generic prescriptions from their doctor; and

 

  • Even wealthy consumers are cutting back. Roughly half so far are largely resistant, with about 18% living as if it still were boom times. But half are affected, with about 20% direly so.

I’ve reviewed 30 years of retail reporting and sadly cannot find any magic formula to weather these difficult times. It appears those companies that survived past downturns had been prudent managers of growth, resisting prior Wall Street demands for headlong store openings. By resisting the allure, or pressure, of inferior locations, they avoided massive closings. They wrung every drop they could out of expenses. They connected with their customers. And they all delivered that elusive potion of “value.”

Americans will continue to spend trillions, yes trillions, of dollars on food, clothing, furniture, necessities and frills. It is not as easy as it was before, but your task is to make sure they spend those dollars inside your stores, catalogs and Web sites, and not somebody else’s.

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