Excerpted from the Washington Post, “Tapping Into Shoppers’ Psyches: Battered Retailers Turning to Sentimental Sales Pitches”, by Ylan Q. Mui, November 11, 2008
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The economic downturn is rattling U.S. shoppers as their wallets shrink and credit dries up. Retailers, who just reported their worst October in decades, fear disaster. The battle for customers — and survival — is on, and stores have little margin for error. With Wal-Mart dominating the race to rock-bottom prices, those who can’t compete must get creative.
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“Believe,” says Macy’s.
Peter Sachse, president of Macy’s Corporate Marketing, said executives began brainstorming the idea shortly after Christmas last year: Believe in Santa, believe in goodness, believe your 401(k) will one day bounce back. Believe in Macy’s. Sachse said the theme felt even more relevant as the economy began to falter.
“It is this stable thing out there in this maelstrom that is going on around the consumer,” he said. “I think it’s going to strike a chord in America.”
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Surely, the thinking goes, some shoppers must need relief from wallowing in their economic misery. Women’s clothing chain Talbots is hoping they’ll want to escape to private parties at its stores.
At these “hostess events,” a loyal customer throws the party, and the store shuts down to the public. The company provides hors d’oeuvres, drinks and, in some cases, even a stylist to help women update their looks. All the hostess has to do is bring her friends and their charge cards. Apparently, they are.
About 70 parties have been held so far, with 60 to 200 shoppers at each event, she said. Talbots is expected to roll them out to all its stores by the first week of December. The parties are supposed to build relationships between shoppers and employees, which the retailer hopes will translate into higher sales.
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But it remains to be seen whether warm and fuzzy feelings translate into bottom-line growth during a year of financial crisis. Darrell Rigby, a partner at consulting firm Bain & Co., said many shoppers are on tight budgets this year and may not be swayed by their psyches.
“Economic downturns have a way of turning consumer purchasing hierarchies upside down,” he said. “Self-actualization and esteem-building don’t seem nearly as important as taking care of basic needs.”
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It’s a lesson that Target has learned as sales have slumped at stores open at least a year, a key measure of a retailer’s health. Target became a cultural icon with its stylish, eye-catching ads and cheap-chic clothes, which make up as much as 22 percent of its revenue. But as shoppers cut back on such indulgences, Target found its message veered off-key.
So this Christmas, it is spotlighting gifts that cost less than $25, such as vintage board games and makeup brushes. It quickly matched Wal-Mart’s move last month to sell several popular toys for $10 or less. Recent TV ads feature the slogan “A new day. A new way to save” and price is more prominent at new signs in the stores.
“We are emphasizing value in all communications with our guests,” Target chief executive Gregg Steinhafel said in a recent meeting with analysts.
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Although price cuts are welcome news for consumers, they eat away at retailers’ profit margins. To keep its budget in line, Target has also cut its payroll and employee overtime. It plans to open only 70 stores next fiscal year and fewer the following year.
According to Piper Jaffray analyst Jeffrey Klinefelter, fighting the price war will be costly to retailers but that those who do not enter the fray risk losing sales.
“We do not expect the consumer to trade up this season,” he wrote, “especially in the midst of significant economic uncertainty.”
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Full article:
http://www.washingtonpost.com/wp-dyn/content/article/2008/11/10/AR2008111002331_pf.html
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