Careful shoppers and leaner store shelves will be the norm as retail recovers in 2010, and that state of affairs could last a while, according to a new study.
The annual Global Powers of Retailing 2010 report by consultants Deloitte Touche Tohmatsu forecasts stores will see sales recover in the short term. But it also warns retailers face a tougher environment during the next decade that will force changes in how and what they sell.
%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%% Retailers will have a good year in 2010 "not a great year, but pretty good," said Ira Kalish, director of global economics for Deloitte Research. Several countries, including the U.S., are emerging from the recession and facing pent-up consumer demand, which should drive higher sales.
But the weak dollar, expected increases in taxes and oil prices, and a consumer who has become more careful about spending will hold down growth in the longer term, Kalish said.
"In five, ten years, this will be a rougher market for retailers," he told the annual meeting of the National Retail Federation. Even with a robust economic recovery in the U.S., consumer spending will grow more slowly going forward than it did during the last decade, Kalish warned.
Consumers Have Changed Their Ways
Deloitte's analysis sees a "reset" in both the general consumer mindset and among luxury consumers, said Kalish.
"Consumers have been shaken by a very bad experience the last couple of years," he said. They won't go back to their free-spending ways, so stores will have to focus more on branding, customer experience and setting themselves apart from rivals.
U.S. retailers appear to be holding their own in that effort, according to Deloitte's study, which computes a "Q ratio" that scores companies on intangible assets such as brand strength, customer loyalty and innovation. Two out of the top three in that category were U.S. companies: Publix Super Markets, followed by Amazon.com (AMZN). Sweden's Hennes & Mauritz (HMRZF), parent of fashion chain H&M, and Japan's Fast Retailing Company (FRCOY), parent of apparel store Uniqlo, were third and fourth, respectively.
That differentiation among retailers is necessary, because thanks to the Web, shopping has become a commodity, said Kalish. Shoppers now arrive in stores with more information than before, but stores are still struggling with how to exploit social networking and other technology to reach shoppers, he said.
Luxury Retailers Affected As Well
The changes aren't limited to moderate price shopping, said Kalish. Deloitte also sees new habits among luxury shoppers; the very wealthy will go back to their usual consumption, but the aspirational shopper will need better value. This will challenge luxury retailers to market to aspirational shoppers without turning off the wealthy. Some may have to choose one segment over the other, noted Kalish.
This is all part of a trend of polarized retail, with growth at aspirational luxury end and among discounters, while the mid-price segment shrinks.
"The middle is not dead, but it's not what it used to be," said Kalish. Many mid-price retailers will have to diversify, by developing sub-brands, either upscale or downscale, he said.
Retailers will have to become more selective all around, said Kalish. This will lead to fewer stock-keeping units on shelves, a reversal of retailers' previous strategy of bombarding shoppers with their ample selection, said Kalish.
"When the consumer is faced with 30 or more SKUs of toothpaste, they want to walk out of the store," he said.
As retailers learn to use the Web to find out what consumers want, they can rationalize their inventory, make a better store experience, and show shoppers they know their customer. Many stores, such as Wal-Mart Inc. (WMT) and Macy's (M), have already been reducing the number of vendors they work with, said Kalish.
In essence, this past holiday season, with its tightly controlled inventories and lean store shelves, may have been a preview of what's to come.