The Rise and Fall of Retailing—Now and Beyond

The current state of the US economy has led to decreased consumer spending in the states, and panic stricken retailers. And while the fight to stay afloat may seem over, there is still an upside—it’s what they call, the cyclical rise and fall. The industry can make a strong comeback if retailers capitalize on 2 major factors that will impact their RVP’s going forward.

Avoid Commoditization
In recent years, many consumer products have become much more affordable due to efficiencies in manufacturing and the increased use of technology that have driven down the cost of production. The result is that most consumers have come to expect lower prices and premiums are increasingly difficult to justify. For example, fashion retailers like H&M carry a large stock of trendy items at lower price points and focus on volume sales. Because new items are constantly arriving in store, a lot of inventory is marked down and made even more affordable. It is not unusual to find tops and accessories for $8 or less! H&M has made it very hard for retailers with less inventory turnover to compete, as prices remain stagnant for a longer period. A few savvy retailers have fought back by making the clothes themselves secondary to the retail format and customer experience in order to attract buyers. Abercrombie & Fitch is one example where dark lighting and models create a unique in-store atmosphere that appeals to a younger demographic. The resulting image of the company and the customers (who buy from A&F) is distinct and inimitable and therefore a premium on its products can be justified. More and more retailers are going to have to cultivate their own experience to ensure decent profit margins and to prevent their product from becoming a commodity.

Focus on Services
Increased commoditization has left more money in the consumers’ pocket and therefore more to spend elsewhere. There is an opportunity for retailers to expand their selection to include services. Services are higher margin and build brand equity and loyalty, given that they are complimentary to the existing product mix. For example, Loblaws introduced PC Financial in 2001 as a way to balance out the low margins on grocery products. The President’s Choice brand was gaining popularity and the introduction of online banking and credit cards solidified the private label’s legitimacy. PC financial is very complimentary to the rest of the product assortment as points can be earned towards free groceries through use of the credit card. It also adds to the idea that PC conveniently fits into all areas of one’s life—food, home and garden, pets and finances. Moving into services will also follow demographic changes: baby boomers are ageing and are falling into a convenience-centered lifestyle. As a result, their reliance on services will increase in all industries and retailers must be cognizant of that in order to compete effectively.

Thinking outside and the box and looking beyond the products themselves to customer experience and services will require retailers to become excellent marketers. Intangible benefits cannot speak for themselves and so retailers need to push their brand and uniqueness to the consumer much more forcefully than before. Leveraging brand identity, beyond awareness, will be the key to success in retail going forward.

Resources

Kamcity Library. 2008 Global Powers of Retailing.
http://www.kamcity.com/library/articles/deloitteglobal08.htm

H&M Canada
http://www.hm.com/ca/#/startpagedefault

Abercrombie & Fitch
http://www.abercrombie.ca/anf/index.html

President’s Choice Financial
http://www.pcfinancial.ca