Ellison Chair in International Floriculture
Ellison Chair in International FloricultureTeaching, Research, Extension and Service

Black Friday and Cyber Monday sales strong

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Though the holiday season is far from over, retailers across the country are breathing a collective sigh of relief after shoppers headed to stores and websites in droves over the weekend. According to the National Retail Federation’s 2008 Black Friday Weekend survey, conducted by BIGresearch, more than 172 million shoppers visited stores and websites over Black Friday weekend, up from 147 million shoppers last year. Shoppers spent an average of $372.57 this weekend*, up 7.2 percent over last year’s $347.55. Total spending reached an estimated $41.0 billion. “Holiday sales are not expected to continue at this brisk pace, but it is encouraging that Americans seem excited to go shopping again.” said NRF President and CEO Tracy Mullin.

It also looks like more people than ever spent the first workday of the holiday season doing something other than work on their computers. Online shoppers spent $846 million in the U.S. on ‘Cyber Monday,’ according to new comScore Networks data. That was a 15% increase over the same day last year (see chart above).

From Conspicuous to Conscious Consumption

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An interview with Dan Stanek, Executive Vice President, TNS Retail Forward

It wouldn’t surprise you if I said that this holiday shopping season is expected to be weak. But would you be taken aback if I said that there is a fundamental shift in consumer values underway that may have a lasting impact on retailers? If your eyebrows are raised, listen up.

What changes are you observing in consumer values?

What I am seeing is the pendulum swinging away from the conspicuous consumption of the 1980’s and 1990’s and toward conscious consumption. And this is having a profound impact on the retail industry. Overall, the current economic situation is accelerating trends toward frugality and placing importance on relationships and people instead of things. The importance on things to make someone happy is being questioned. I am seeing almost an anti-consumerism sentiment.

The immediate change for retailers is that people are shifting from premium brands to down-market channels. Wal-mart (WMT) is a big beneficiary of this trend with its lower prices and higher value. There is also a move into dollar stores and thrift shops as well as Freecycle or Craigslist and other places where people can barter and exchange goods versus just throwing away unwanted items.

In the long run, some of these new spending patterns will stick with consumers who may not return to spending more when the economy rebounds or who will stay with lower-end brands in some categories.

Is there another time in history where there has been a big shift in consumer values? How did it impact retailers then?

During the Great Depression there was a profound amount of frugality. People made the best use of what they had. This value system stuck with that generation for their lifetime. They purchased high-quality goods that would last a long time. They didn’t want to be wasteful.

There were also profound shifts in the opposite direction, during the 1980’s and 1990’s. During the tech bubble when people started to feel rich they wanted to display that affluence with a Rolex or perhaps a BMW or large home. During this period of high consumption the retail industry experienced tremendous growth and also consolidation as the rise of behemoths like Wal-Mart occurred.

Is there a brand or campaign that you think is getting in right in addressing the current shift in values?

Dentyne is taking a very basic product, a discretionary product, and instead of positioning it around taste or fun they are relating it to specific relationships and social issues. Their campaign (supported by TV spots, billboards and the internet) is all about people and your relationships with them – “Make face time.” Obviously the connection they want consumers to make is that if you are going to be with people you need fresh breath. So, Dentyne encourages people to get off the internet and re-connect with friends by providing visitors with 3 minutes to explore dentyne.com. It’s an original concept.

What advice do you have for retailers who are (re)developing their marketing strategies?

The most important thing for retailers is to tie value and values together. When you can make a statement to offer lower price or great value and also that you are doing things “right” (such as making a donation with each purchase or using environmentally friendly materials), it will help justify the purchase for shoppers. You need to provide a reason for consumers to prioritize your purchase in their life above other things they need to spend money on.

Retail Holiday Outlook

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Two independent surveys project the troublesome holiday outlook for retailers:

  1. According to the National Retail Federation’s (NRF) 2008 Holiday Consumer Intentions and Actions Survey, conducted by BIGresearch, U.S. consumers plan to spend an average of $832.36 on holiday-related shopping, up a paltry 1.9 percent over last year’s $816.69. This represents the lowest increase in planned consumer spending since the survey began in 2002.
  2. A Deloitte survey released Wednesday was a bit more bleak in its findings. Almost six in 10 consumers said they would reduce spending this holiday season. Shoppers plan to spend about $532 on gifts, down 6.5 percent from last year, and buy fewer items. Nearly seven in 10 consumers said they would wait for store sales, cut back on shopping trips to save gasoline and use more store coupons.

From an earlier post, I quoted BusinessWeek.com saying:

“Call it a customer service Christmas. Consumers are expected to rein in spending this year, and the retail climate favors big-box stores that can offer bargains. But because small retailers can’t win price wars, experts say independents need to leverage their biggest advantage over the chains: personal relationships with customers and the ability to deliver superior service. With some economists predicting one of the weakest Decembers since 1991, retailers that falter could face a cold winter.” For the entire story, click here.

Another good quote I came across today:

“In the current economic environment, consumers are looking for value,” said Stacy Janiak, Deloitte’s U.S. Retail leader. “Heading into the holiday season, retailers will be well-positioned by emphasizing their unique value propositions, whether that means price, customer service, loyalty programs, or some other metric important to their customer base. In addition, given the current credit situation, retailers should take a close look at their financing options and conduct scenario planning, particularly with respect to liquidity issues.”

Since retail firms in the Green Industry should NEVER compete solely on price, they MUST differentiate their product and service offerings. Refer back to previous posts on differentiation strategies (click on the differentiation link on the right-hand side of this page) as a reminder of why this is so important!

Customer Service Christmas

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Here’s a good quote from yesterday’s BusinessWeek.com: “Call it a customer service Christmas. Consumers are expected to rein in spending this year, and the retail climate favors big-box stores that can offer bargains. But because small retailers can’t win price wars, experts say independents need to leverage their biggest advantage over the chains: personal relationships with customers and the ability to deliver superior service. With some economists predicting one of the weakest Decembers since 1991, retailers that falter could face a cold winter.” For the entire story, click here. Also refer back to previous posts on differentiation strategies (click on the differentiation link on the right-hand side of this page). Thanks for the link, Stan!

“If you’re not confused, you’re not paying attention.”

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From the NYT…

News on the economy was mixed on Friday morning, with the release of a mildly relieving Producer Price Index report(measuring the average change over time in selling prices received by domestic producers of goods and services) and a discouraging retail sales report for August. Stock markets initially fell on the reports, but stabilized by noon on Friday.

The price index for finished goods, a measure of the change in prices businesses pay, fell 0.9 percent in August after a 1.2 percent increase in July, according to the Bureau of Labor Statistics. The August decline was the biggest since October 2006.

Consumers’ spending on retail and food decreased 0.3 percent in August after a 0.5 monthly drop in July, according to the Commerce Department. Economists had been expecting an increase of 0.2 percent.

Retail sales probably fell for several reasons, economists said. For one, the fiscal stimulus checks that had bolstered consumer spending over the last few months ended in July. Consumers, squeezed by high energy prices and an ailing job market, are expected to reduce their spending for the rest of the year.

One concern is the jobless rate, which jumped to 6.1 percent in August, its highest level in five years, from 5.7 percent in July. The steady rise in unemployment is one that many economists associate with recession.

Dropping gas prices seem to have benefited consumers psychologically, at least, even if these declines are not being reflected in retail sales. The preliminary September consumer sentiment index, released by Reuters and the University of Michigan Friday morning, showed the biggest monthly improvement in American consumers’ views of the economy since January 2004.

My opinion: This is not the ideal situation going into the fall season. The fall retail outlook has been speculative for the past several months and the August numbers play out according to projections. August is usually a very good month for general retailers because of back-to-school-related sales.

Bottom line: This is NOT the time for head-in-the-sand tactics. Review some of my earlier posts regarding retail strategies in the face of a down economy (click here) and be very proactive with fall promotions. Give Ms. Consumer something to be excited about this fall. Sales of plants and other items for themed Fall displays in the home and landscape have been growing the past several years. Let’s keep the streak going.


Coping with a down economy

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As promised, here are a few strategies to consider for coping with a down economy. Some of these steps are radical, while others are a more milder form of defense. Implement them according to the conditions you experience in your market area.

  1. Conserve your cash. Don’t spend a dime on anything that isn’t absolutely necessary to your operation. Examine every personal expense you have to find alternatives to any spending patterns.
  2. Refinance anything and everything you can. Stretch out the payments because getting cash later on will be difficult as more people will apply for loans and banks will become very picky.
  3. Work out a worst-case scenario cash flow projection that projects your company having a decrease in sales. As part of this, determine what expenses will be unavoidable. Look through your cash disbursements. Pre-plan a less expensive alternative to any expense category that you can.
  4. Know your costs well because poor pricing can put you out of business faster. Assume that cost-side pressures caused by a recession will last about two years after a recession is over.
  5. Beef up your advertising/marketing. Everyone else is cutting back. Now is the time to gain “mind share.”
  6. Slowdowns mean layoffs. Therefore, new hires become available and are sometimes available at a lower rate of pay than your current rate. Take advantage of that fact.
  7. If part of your fleet is going to be idle for some time, try to store unused vehicles and get a reduced rate of insurance due to non-use.
  8. Selling off assets during a recession is difficult. Nevertheless, selling off unused equipment reduces insurance and registration costs and property taxes. Convert anything you don’t need into cash well ahead of any signals that your area will be hard hit.
  9. Apply for credit long before you need it. You may have to “borrow” your future, and banks will raise interest rates on high-risk loans as conditions worsen.
  10. Look deeper in your own markets. Can you offer your current customer base a more diversified line of products and/or services?
  11. Review your business insurance to make sure your premiums have been adjusted for the depreciated value of your vehicles and equipment.
  12. Take a look at your estimated tax payments made to the IRS. Decreased earnings call for decreased estimated tax payments.

Cash is “king” during economic slowdowns no matter how mild or severe. Expect your customers to also feel the effect, which means they will pay you at a much slower rate than during the good times. That’s precisely the reason that you’ll need additional working capital to finance your receivables if nothing else.

Run a cash flow working capital projection using 60 days, 90 days, 120 days and even up to six months to be paid from some of your customers. How much cash do you need to survive? Find the answer to that question. Prepare and save for that eventuality and you’ll be ready for a downturn.

Ecomomic Rx for Business

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“In good times, running a company is exhilarating. Money is flowing, customers are happy, employees have a spring in their step. In not-so-good times—like now—the very same job can feel like scaling Mt. Everest in a snowstorm while wearing a knapsack filled with bricks and suffering from a bad case of the flu.”

In the latest Florists’ Review magazine, Quint Studor offers “Eleven Ways to Infuse Your Company with the Leadership Skills to Thrive in Tough Times” — a good read. For more, click here.

Another good read is George Whalins article on “Strategies for a Changing Retail World” — click here.

Other good reads include:

Don’t Just Survive—Dominate
When the Going Gets Tough…
Maintaining Strong Sales During the Summer
The Upside to a Downturn
The Business of Retail is Going to be Brutal in 2008

What can we learn from Saks???

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The wider economy was the scapegoat for Home Depot, which posted a 66% drop in net income. However, Saks Fifth Avenue appeared unbowed by the difficulties and continues to illustrate the way luxury brands can avert some of the pain felt by other retailers.

The economic downturn has been particularly difficult for home-improvement chains such as Home Depot and rival Lowe’s. The retailers are double-teamed by a drop in the housing market and a slowdown in consumer spending.

Saks was the inverse of Home Depot, posting a 66% increase in net income. How does this happen? How does a firm selling in the luxury market experience an increase in sales during a period of economic contraction?

The answer, for the umpteenth time, is differentiation. In this case, a level of service and perceived value (notice I did not say low price) that is unparalleled by other stores. For related rantings, see my earlier post regarding the elasticity effects of successful differentiation.

In a recent American City Business Journal interview, entrepreneur brewer Karan Bilimoria describes the type of innovative thinking that helped him build his business. Bilimoria said the keys to success can be described in three key points: Be different; be better and create new markets.

Consumers showing resilience

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Today, the Commerce Department’s retail-sales report showed an overall 0.2% decline BUT exhibited a 0.5% increase when auto sales were excluded.The resilience of the consumer seen in today’s report is particularly encouraging given that this number largely represents spending that occurred prior to the receipt of the economic stimulus rebates. While it’s conceivable that some spending may have been pulled forward in anticipation of the rebate checks, survey responses and historical experience suggest these outlays occur only after the checks have been received.