The Time is Now

During a conference call this morning, with a highly respected and very influential senior retail executive, the subject of tactical responses to the current economic situation arose. This individual speaks at conferences on leadership, and in my humble opinion, is not only articulate but a progressive thinker. This is only relevant within the context of his comments.

The topic we were discussing was the prevalence of the retail merchant community, right now, to be relatively closed to new techniques, technologies, tactics and even thought patterns.....given the brutal nature of retail sales. All participants in the call agreed that most retail executives have taken a severely risk-adverse approach to managing through the current crisis. The specific comment which spurred this posting was (paraphrasing): "I would be hard pressed NOT to counsel any retailer to stay with the tried and true, and tend to their knitting, not looking outside the box for answers, and putting emphasis on the fundamentals they know will drive their business". Coming from this particular executive, I found the point of view particularly telling. And, I think, completely wrong.

Most retail observers and participants agree that the current economic conditions and consumer spending patterns represent something completely outside our experience. Further, it is clear across numerous retailers and a wide breadth of product categories, that the existing levers which have successfully stimulated volume are either broken or much less effective. Again, this is hardly surprising. The rules governing consumer behavior during a deep recession are completely different than those developed during a period of extended economic expansion. Technology and process were developed in response to those "rules"....in other words, the tactics employed to manage our business evolved and were designed specifically for a set of expectations and consumer profiles which to a great degree are no longer valid.

In that environment, to "tend to your knitting and focus on the tried and true" sounds like a recipe for disaster. Or at the very least, for ineffective management. Now is exactly the time to be developing new tactics to meet new rules about consumer behavior and economic elasticity. Simply focusing on what worked in the past is not going to produce reliable results of comparable impact now or for the immediate future. Take this within reason, though, please. This does NOT mean that promotional pricing and marketing should be abandoned. They are critical aspects of the merchandising mix, and will and should be continued. However, they will have less impact and deliver lower ROI's than in the past. As will clearance events, Black Friday and all the other price-related mechanisms retailers use to stimulate volume. Each must be continued (at least in the short term), while each will without doubt deliver significantly less impact. Which means that doing what you know how to do is NOT going to deliver the results you need.

Organizationally, if risk aversion is the dominant driver in tactical planning, then results will continue to lag requirements. It is only by completely rethinking the paradigms which surround your strategy that higher impact tactics can be developed. They will vary from retailer to retailer and from niche to niche, and that is NOT the point. The point is that doing the same thing is going to produce declining results, with greater profit impact than ever before. In the short term, with limited options, these tools must be used, and used aggressively. However, when 2009 is taken into view, it is imperative that NEW be the operating principle behind merchandise and marketing strategy.