More about Consumer Trust

Yesterday I offered the opinion that building consumer trust involved delivering a merchandise assortment with integrity and intentionality. I'd like to spend a few more moments on this concept.

As retail executives, we've heard forever about the "art and the science" of merchandising. In the past decade, the "science" has tended to take a dominant position, driven by very real improvements in software and technology. Retail merchants can now create merchandise plans based not just on volume groups, but on dynamic and multiple consumer tendency profiles, on store level price responsiveness, and on an almost dizzying array of other variables. Software exists to model probably price elasticity, market basket benefits, and virtually any "use case" which defines consumer behavior. And because this technology, or science, produces numbers and outcomes and projections, perhaps a disproportionate amount of time is spent with it. Just perhaps.

One of the trends in retail for two decades has been away from the "product specialist" to the "professional buyer".....with the belief that the same process, techniques, tactics and technology can be applied to virtually all products and categories. Along with this has been a gradual and very real increase in the SKU count handled by the average merchant....supported in many cases by the technology we've already mentioned. The result is a circumstance where outside of some isolated examples, it's virtually impossible for a merchant to acquire and apply the product knowledge we would have expected (and demanded) twenty years ago. And in the growth decades, that was an OK result.

The recessionary environment almost demands a swing of the pendulum back to some level of product expertise. If my argument that building and maintaining consumer trust is vital in the coming year(s), and if doing so will demand that the assortment deliver on the brand promise....then it follows that the merchants will have to spend significantly more time evaluating each option in the assortment against that criteria. Ask this: do your merchants have either the knowledge domains or the support structure available to adequately perform that analysis? Because if they do not, how can you, as a retail executive, have any confidence that merchandise assortments deliver on the brand promise you are going to work so hard to create-reinforce-build?

Recapturing Consumer Trust

A long time ago, when I was a kid, retailers were trusted sources of information for the consuming public. Granted that there were often many fewer options for almost any product category than currently exist. However, in general, retail equity, once upon a time, was based on the trust developed with the consumer. One inherent aspect of that trust was that the merchandise offered had been specifically and carefully chosen to meet the needs of a given customer group. In other words, as a consumer, you didn't have to become a mini-expert on something in order to feel confident in buying it. The presumption was that the Retailer assumed that role, and had done your investigation for you. With limited floor space and limited open-to-buy, merchandising executives make conscious decisions about the range of products offered to their customers. This responsibility hasn't changed over the years, although the tools, processes and tactics to achieve the result have. So, the "task" of creating a focused, powerful and intentional assortment hasn't changed. Yet, it is almost undeniable that the consumer no longer affords retailers the position of "expert".

What happened? Maybe that's not a good use of your time....looking backward. I'd do it only if you still think you really are given that position of trust and confidence by the consumer. Some retailers have sustained this element of brand equity. I would argue that no one, even the very best of today's retail world, has anywhere near the trust and confidence that some retailers experienced decades ago. Wouldn't we kill for that level of trust and confidence again?

So how do we get it back? First and foremost, as merchants, we have to actually be doing the task outlined above. We have to be creating focused, powerful and intentional assortments. Let me repeat the most important word in that list: intentional. A well crafter merchandise assortment is like a complex matrix of widgets, each of which makes sense both independently and in connection with each other. No single aspect of the assortment exists without a reason. Is that true for your assortments? Or are they accumulations of products within categories and sub-categories which follow some sort of price point or vendor structure? In short, are your assortments a function of your merchandise planning format or are they the result of a creative intentional plan.

Consumer trust can be recapturing by doing what the consumer originally (and still) wants the retailer to do: tailor their assortment to present products which are designed to appeal for specific reasons and offer a consistent value proposition. This is critical. A consistent value proposition. Not that some things are "steals" or "bargains.....no, that each and every item is intended to embody a consistent and clear value proposition. This can be accomplished at every price point and across every dominant, sub-category or consumer profile your assortment is built around. Essentially, given the specific set of features and benefits inherent in each item of the assortment, when compared to the price, a consistent value is delivered. Any one consumer may not be attracted to a given set of features and benefits.....yet there should be, within the assortment, products which DO attract that consumer...given her stereotyped set of needs.

You cannot achieve consumer trust through marketing. All that will do is create the possibility of "trial". The only way to deliver consumer trust is to perform the role the consumer needs from you. Today, in this recessionary environment, it is more important than ever to have some process within your organization which actively questions and challenges assortments. Believe this: retail brand equity is being built or squandered right now at the assortment planning level.

Responding to Evaporating Consumer Credit

For the past several weeks, reputable news outlets such as Businessweek and The New York Times have published reports on Consumer Credit Card problems. Banks and card companies have not only tightened standards for issuing new credit, they've systematically reduced existing credit lines while simultaneously increasing card interest rates. Last week, writing for RetailWire, I called attention to this issue with reference to it's impact on Holiday sales. The implications are clear: less available credit combined with higher interest rates means effectively reducing overall current and potential disposable spending. Credit/Debit cards nationally are historically used for as many as 40% of Holiday retail transactions. Consumer credit card debt is at an all time high, and the percentage of cardholders making minimum payments is significant.

So this is not an "if' but a fact. Consumers will have less credit to use for Holiday retail sales. What will be the impact? You have the answers in your data base, at least to some extent. I suggest that creatively thinking retail executives will have someone in their organization run the following analysis.
1. What percentage of our Nov/Dec sales are via credit cards? Are we seeing any current trends toward credit being used less (Walmart is)?
2. Cross reference product categories (down to the sub-category level) against credit card use if possible. Try to identify the product types with the highest rate of credit card use. Use aggregate and distinct Holiday data. Holiday probably has a different profile than the rest of the year.
3. The categories (or hopefully products) with the most vulnerability to drops in credit card use should have their sales forecasts re-evaluated......downward. With any luck, this will generate lower replenishment orders or cancel some late season balances, reducing overall merchandise inventory exposure.
4. Analyze planned marketing exposure for those products/categories. Promoting these items is not going to generate the lift previously expected. While changing planned marketing exposure becomes a self-fulfilling prophesy against sales estimates, the space could probably be better used on products/categories with less vulnerability.
5. Investigate the possibility of re-introducing store layaway programs. While this exposes the company to the financial risk of potential bad loans, the write-off expense will probably be significantly less than the gross margin loss of accelerated markdowns on higher end of season inventories. In short, even if you write off 5% of the layaway sales, calculate the gross margin basis point loss which would be worse. Your inventory risk due to lower than anticipated sales is probably going to be greater than the financial risk you'll be taking on.
6. Emphasize alternate payment methods for your ecommerce operation.
7. Refocus promotional and marketing efforts on products and categories with less credit card exposure.

The key fact to become comfortable with is that the evaporation of consumer credit means measurably less potential for sales. The consumer may or may not have used the credit which was reduced....we'll never know. It doesn't matter: from the consumer's perspective, they have less money available. This will impact everything.....but some things more than others.

My next post will outline some thoughts about positioning your brand into this cash-crunched environment.

Retail Brand Strategy in a Recessionary Environment

Over the past six weeks the retail industry has been forced to accept a reality we've all tried very hard to hide from: consumer spending (at least) is heading into the deepest recession in modern memory. All the signs are there, and they are all in alignment: consumers across every demographic and psychographic segment have less disposable income and are becoming increasingly careful about spending what little they have. From my perspective, this is reality. The winners in the coming year will be those retailers with sufficient courage and flexibility to face reality and alter their methods and practices in response.

A quick observation on current Retail Brand strategy: most seem to be based on addiction to "aspirational marketing". That's a buzz word for playing on the needs of people to be "like" those they perceive as "better" than they. More affluent, trendier, cooler, smarter....you fill in the blank. Most brand marketing has become about convincing the consumer to shop at your store because it will make them feel better about themselves. We don't have to beat this to death: just pay attention to some retail ads for a day or so and you'll see what I mean. The boom economy of the past decade generated this brand mantra. An ever expanding expectation, despite plenty of evidence to the contrary, seemed to feed into the need of consumers to believe that the American Dream (as lived by their parents) was still alive and flourishing. In fact, it's been in decline for a number of years. Without the subprime lending practices of recent years, how many of us really would have been able to afford a home that was bigger or better than our parents? Without sucking the equity out of our homes and maximizing our credit lines, how many of us would have been able to buy the flat panel TV's and new wardrobes which proved we were still part of the upwardly mobile?

Reality has arrived. Aspirational marketing not only will NOT sell, it will fall on jaded and angry ears. Will the consumer take responsibility for decisions to buy, buy and buy some more? To make financial decisions, plans and commitment that would have put our parents into a catatonic fit? Absolutely not! It will be the fault of the advertisers, the lenders and the retailers who sold them on the belief that feeling good was just one more purchase away.

Retail brand strategy in a recessionary environment will actually revolve around delivering the goods. That's right: having a competitive advantage which meets a real and valuable consumer need in a more compelling way than your competition. In order to do this, Retailers must redefine what they mean by "real and valuable consumer needs". Aspiring to be one of "them" isn't going to be high on that list.....not when there's not enough money to buy groceries, pay the rent, or buy what they really need.

So what should retail brand strategy be driven by? My belief is that retail brands need to deliver certainty to anxious consumers. Certainty is the belief that whatever it is they are buying is right for them.....whatever "right" means for that consumer. When money is scarce, the most fundamental need is not to waste it. Ask any survivor of the Depression (or their kids)! Fundamentally, this means that your merchandise actually does the things it says it does....and doesn't charge for a host of other features the consumer doesn't really need. Another word for "certainty" is empowerment. Empowered consumers are given the information they need to make the best possible decision for themselves. Retailers who deliver this benefit will garner incredible amounts of brand equity.

So if you want to know what to do in the coming months, start with this question: what can we do to empower our consumers?