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Wednesday, July 02, 2008

Retail, the Dipstick of Social Change

"Retail continues to be the dipstick of social change."

Those are Paco Underhill's words. He stated them during the 2006 Envirosell Science of Shopping conference. He states them again in the March 2008 issue of DDI Magazine in his 'shopping with Paco' bimonthly column.

Those words catch my attention. Inevitably, Paco's words make me think.

His March DDI Magazine column, titled "A tale of thirds," makes the following points about retail being the dipstick of social change.

+ One third of the American population lives from one paycheck to another, with little savings [note this includes middle to upper income households]. For them, "...shopping is going to come to a standstill. Forget the organic produce at Whole Foods; they will buy food at ALDI, Trader Joe's and Wal-Mart."

+ Another third "is not at immediate risk, but they are scared... This group of Americans is taking pride in spending their money well..." They are the ones doing tons of research on the Internet, asking questions and making sure that anything they purchase captures the full bundle of value that they expect.

+ The last third is financially secure with mortgages paid off, retirements plans fulfilled. "The recession will have limited effect on them.... They'll go to Trader Joe's because they like it, and to the department store whenever they want."

Paco predicts that "the world of shopping is on the edge of a new form of chaos." Why? Because despair from one-third will mean little to no shopping; frantic bargain hunting from the middle third means a lot of channel churning, and from the last third you can expect disinterest because they essentially have all of the stuff they need.

He says "It will get ugly. North America is over-stored, and most merchant organizations will be healthier shedding underperforming locations... [with] the contraction vary[ing] from 10 percent to 30 percent." [Read Why Starbucks is hitting the wall.]

Having gone through the dismal scenario, Paco lays out what we can expect. Please pay special attention. I consider these three points vital to our future:

1. "American merchants have to get beyond "The Sale" as a promotional tool of choice. Improved supply-chain management and inventory control is the proven solution to discounting." [Note: The WSJ recently described in Logistics Are in Vogue With Designers from 06/27/08 how even high-fashion houses are focusing on improving logistics.]

2. "The offering and service proposition need to get matched up. Having hip ads and dirty stores doesn't add up."

3. "Decision-making needs to get closer to the actual floor of the individual store... We are an entrepreneurial culture. Give store managers and district managers more control and incentives, and they'll make their numbers."

By the way, this 6/02/2008 article, titled Luxury retailers realize it's a new shopping scene. When times get tough, even top-shelf retailers break out their red tags and clearance signs by Sandra M. Jones, says that "luxury pricing power has eroded" and "price has never been as important to the consumer's shopping level as it is today no matter what the income level."

The article describes the factors at play. Namely,

+ "At the core, the blurring of luxury and moderate and discount lines has created a savvy shopper who moves between Target and Barneys New York with ease and is proud to crow about finding a deal..."

+ Younger 'aspirational' shoppers have started watching their spending while their parents prefer to spend on experiences rather than more stuff.

+ And, "an undercurrent in American culture that is dampening the allure of materialism and status as environmental and social concerns take center stage."

Reminds me of Paco's thirds.

Related posts:
+Paco Sightings... and Rubber Soled Shoes
+'Tis the Season to Cite Paco

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Anonymous said...

Hi, CB!

This is a very informative article. In-depth description of the retail there. I think the key should be moderation. When the market is saturated, naturally it will react, and adversely most of the time.

CB Whittemore said...

Meikah, thanks for your comments. I agree: moderation is key. Amazing how difficult it is to achieve, though.

Anonymous said...


Paco's description represents what I've been seeing and feeling. Yet I have been wondering, "Is it just me?" "Am I seeing clearly?"

Now the real work starts:

1. How do those of us in business respond to this most effectively?

2. How do we adjust our own habits accordingly without over-reacting?

Good one, CB.

CB Whittemore said...

Steve, you are so right. Now the real work starts!

From a business perspective, I think our response is to be extremely focused on providing real and meaningful value to our customers.

And, we adjust our own habits similarly: being very focused on what provides us with real and meaningful value.

Good will come out of all this; it's just that there's hard work ahead.

Thanks for adding your perspective.

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Reminder: Please, no self-promotional or SPAM comments. Don't bother if you're simply trying to build inauthentic link juice. Finally, don't be anonymous: it's too hard to have a conversation. Thanks, CB

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