Riding Out the Storm

With consumer spending plummeting, unemployment rising, credit markets frozen and financial institutions in turmoil, these are difficult times for even the most well-positioned retailers. In a new Nielsen Co. Insight report, entitled “How to Cope During Difficult Economic Times,” authors Todd Hale, senior VP, consumer and shopper insights, and James Russo, VP, marketing, The Nielsen Co., noted that declines in discretionary expenditures have been taking a toll on low-, mid- and high-end department stores, while grocery, dollar, club and drug stores fared better. Retailers carrying assortments based more on “need-to-have” and less on “nice-to-have” have registered positive same-store sales growth, according to the report. Similar patterns were observed overseas.

The report found that consumers have learned to trade down to value channels, reduce purchase frequency and downscale from premium to mid-tier or value brands. Certain categories have fared better than others. For example, among the big winners in the battle to sustain lifestyle amid declining purchase power is wine, which posted the greatest unit sales growth of any category.

For consumers in a down economy, private-label goods are an increasingly attractive option. According to the report, private-label items claimed a 16.4% dollar share within U.S. supermarkets, drug stores and mass merchandisers in 2009 (for the year ending Nov. 2, 2008), and generated $82 billion in sales. Still, Nielsen observed, the United States lags behind other, more developed private-label markets abroad, including Switzerland (46% share), the United Kingdom (43%) and Germany (30%).

The study doesn’t offer much in the way of short-term relief, noting that forecasts call for continuing tough times and that retailers should expect existing behaviors—forgoing discretionary purchases, trading down and the emphasis of value over variety and convenience—to continue. But it contained an important observation, noting that history shows a strong return on investment for companies that stay the course in recessionary times.

Along with the report, Nielsen is offering retailers recommendations for getting through bad times. Here are its Top 10 Retailer Tips in a Difficult Economy:

1. Take higher margins in less price-sensitive categories. Ranking categories based on purchase frequency is a fast and inexpensive way to identify categories that are least sensitive to higher pricing. Shoppers are less likely to remember pricing on products purchased only once or twice per year. For higher-priced products, however, shoppers are more likely to shop around for the best deal.

2. Lower the thermostat in stores this winter. Customers will be wearing coats anyway. This will save on heating costs while promoting a “green” image. Retailers can post a sign on the front door, letting shoppers know how lowering the heat helps the environment. Also consider turning down the air conditioning in the summer.

3. Publish your own $100/week family menu.Supermarkets can create a weekly meal plan for a family of four to eat nutritious meals from easy recipes tied to key items. Look to vendors for meal ideas or consider ways to promote your own store brands. Consider showing price comparisons to fast-food outlets.

4. Tie discounts to large or frequent trips.Why offer red-hot door-buster deals that do nothing to generate additional purchases? Instead, consider offering hot prices for shoppers with a $100 purchase. 

5. Expand beyond your channel’s traditional product mix.What’s stopping grocers from selling video games or electronics stores from selling snacks? Convenience and liquor stores also have a huge opportunity to sell  men’s products such as tools, gadgets and video games. What’s more, grocers can take higher margins on “non-grocery” items, since shoppers buying electronics or clothes in supermarkets are looking for convenience and fewer trips — not always the lowest price.

6. Maintain competitive pricing in most frequently shopped categories. Shoppers can recognize a high price on the products they buy weekly. To give the appearance of low prices, retailers need to keep these items priced competitively, even if those low prices are subsidized by less price-sensitive items.

7. Disguise store brands. Consumers can usually spot store brands positioned as a low-cost alternative to a national brand. But in recent years, savvy retailers have been developing premium, multi-tiered store brands. Some retailers, such as Wal-Mart, downplay their store brands with different brand names for each department or category.

8. Support organic, natural and green products regardless of sales. The growth of organic products may slow during this economic downturn, but featuring healthy and environmentally sustainable products will help boost a retailer’s banner equity. Organic, natural and green products project a positive image for retailers — and when the economy recovers, retailers will want to be known for more than just low prices.

9. Get shoppers to try premium private-label products. Shoppers are creatures of habit, and changing habits takes some effort. Offer trial sizes, $1 sizes, or 100-calorie packs. Or consider featuring one private-label product each week with a free unit to shoppers spending $100. In-store taste-comparison demonstrations for shoppers may also help boost sales of private-label products.

10. Make a good impression on new shoppers. The struggling U.S. economy is significantly affecting how and where people shop, with consumers switching between brands and retailers. Now is not the time to cut corners on factors that will negatively influence shoppers’ experience.