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NRF: Understanding consumer key to retail success

By Michelle Graff
January 12, 2009

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New York--When the cloud of the current economic recession lifts, it will leave in its wake a consumer who is remarkably different than the consumer of today.

The retailers who will survive in this brave new world will be those who understand the changes.

That was the message delivered by the first three speakers--including the chief executive officer of the country's largest jewelry retailer, Wal-Mart--on Monday morning at the National Retail Federation's annual conference, being held through Wednesday at the Jacob K. Javits Convention Center in New York.

In a question-and-answer session following his opening keynote address, Wal-Mart President and CEO H. Lee Scott Jr., who will be retiring at the end of the month, said he doesn't know when conditions will improve for retailers.

But, when the economy does turn around, he said he does not expect U.S. consumers to return to conspicuous consumption.

Scott said he meets with a group of young consumers on a monthly basis to understand their spending habits, and in recent meetings, has noticed a fundamental shift in their buying behavior. All members of the focus group have cut back on their spending in some area, whether it be eating out, going to the movies or shopping, and no one regrets having to cut back.

"Every one of them had given up something, and every one of them felt good about it," Scott said.

He said even if a large amount of liquidity for consumers is pumped into the system via an economic recovery package, he doesn't think consumers will immediately return to the same level of consumption--a positive change, in his eyes, from the buy-now, pay-later attitude of consumers today.

"It's bad for retailers, (but) I'm not sure if, from a society standpoint, it's that bad," he said.

Moving forward in the current economic environment, Scott said the consumers who are buying are looking for very specific items. Retailers who will succeed are those who know exactly what their customers want and model their open-to-buy accordingly.

"You had better understand your customer right now and you better understand your inventory," he said.

In a subsequent session, called "Weathering Retail's Storms: How to Navigate a Turbulent Economy," two Deloitte analysts delivered a similar forecast on the consumer of the future.

Carl Steidtmann, chief economist for consumer business at Deloitte Research, said the current economic storm is set to alter the landscape of our economy as we know it, and "no industry will be more affected than retail."

According to Steidtmann, after years of conspicuous consumption, today's consumers are now being forced to de-leverage, as credit is hard to obtain in the current economy.

"This process of de-leverging," Steidtmann said, "will continue and continue for a long time."

In addition, the aging of the baby boomer population will mean a slowdown in spending from a very large portion of the U.S. population, and a wave of retail bankruptcies will result in more competition on price for those retailers who manage to stay afloat.

Despite all of this, Steidtmann said there will be a recovery in consumer spending and, thereby, a return to profitability for retailers.

Those retailers who are willing to drastically change the way they do business are the ones who will be poised to take advantage when that recovery occurs, said Stacy Janiak, a Deloitte vice chairman and national sector leader for retail.

Using video clips of CEOs from Best Buy, J.C. Penney and Zappos talking strategy, Janiak said retailers need to focus on customer centricity, make strategic investments in information technology--including taking advantage of the growing number of consumers who shop from their mobile phones--and make their brand relevant to consumers.

She also encouraged retailers to invest in their staffs: Even if a retailer is having to cut employees due to the slow economy, make sure that those who remain are well trained.

"A whole new direction is needed," Janiak said. "Standing still is not an option."
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