Despite Tightening Wallets, Select Brands Flourish
As spend growth softened in the second half of 2023 across discretionary categories and companies geared toward more price-conscious consumers flourished, opportunities presented themselves for brands that kept an open mind. The trend of a cautious yet resilient consumer has continued into the early stages of 2024, with high-ticket luxury and department store industries underperforming sectors that sell necessities — online retail, discount/club, automotive and grocery. Full-service restaurants are trailing their limited-service peers.
One of those creative methods could include unconventional yet fruitful partnerships such as Ulta Beauty at Target, Sephora at Kohl’s and Petco at Lowe’s. At Lowe’s, for example, the company recently announced that after a successful store-in-store pilot program with Petco, they are planning on expanding from 15 Lowe’s stores to 300 stores by the end of the year. Lowe’s attributed the pilot’s success and subsequent expansion to the growing number of families in the country owning a pet – around 70% at the time of the announcement.
Proactively recognizing the potential, these brands strategically merged their positioning and targeted new customer segments, working to overcome the negative effects of the pandemic that led to drastically reduced in-person traffic. Big-box retailers enabled Ulta, Sephora and Petco to solidify their positioning in the market via access to new customers that hadn’t been exposed to their product offering before, as well as the increased convenience of buying multiple categories of items in one shopping trip. Target, Kohl’s and Lowe’s leveraged these partnerships to generate new reasons to visit their stores, aiming to gain new, loyal customers who would visit more than just the shop-in-shops.
Brands Benefit from Cross-Channel Collaboration
These collaborations could generate major profits for all parties involved. As more retailers decide to create similar relationships, they will base those decisions on corroborating consumer spending data. With cross-shop and wallet share analyses based on actual purchase behavior, companies can more confidently select partners that are most likely to enhance and expand their customer base. Similarly, they also become privy to consumer need gaps by channel, and thus both parties benefit by providing a fuller service to the customer in one shopping experience. Having such data transparency enables retailers to develop and implement novel and inventive approaches that enrich customer shopping experiences.
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The industry winners of 2024 will be the retailers that harness the power of consumer behavior data to gain a significant advantage in the marketplace.
Powering up Data with Demography and Geography Breakouts
To stay competitive, retailers must evaluate top competitors using data-driven insights that evaluate their customer base to determine their position in the market. However, not all customers behave the same. Brands leverage demographics and geographic data to tailor marketing strategies, products and services to specific consumer segments. By understanding the age, income and location of their target audience, businesses can create targeted campaigns that resonate with local preferences.
Personalized approaches foster stronger connections with customers, enhance brand relevance and increase the likelihood of conversion. Whether adjusting product features, pricing strategies or advertising content, the strategic use of demographic and geographic data empowers brands to effectively reach and engage their intended markets, driving business growth and sustaining long-term success. For example, in the case of the government’s stimulus payment checks tied to income, spending behaviors shifted dramatically based on income levels.
Decoding the Multi-Channel Consumer
After recognizing market positions, retailers should identify what’s driving changes in sales volume – such as shifts in consumer behavior, an evolving competitive landscape or macroeconomic forces. The channels where consumers interact with a brand the most are keys to influencing future marketing decisions. Consumer behavior data with a full-wallet view allows retailers to analyze competitive positions across different channels: online, brick-and-mortar, and potentially, third-party distributors.
One of the most relevant and important use cases for multi-channel brands is tied to understanding the lift and decline in online spend when a retail location opens or closes. This is particularly important when benchmarking against competition and understanding how aggressive competitors are in online vs. offline channels.
It is essential to understand the unique characteristics and preferences of an audience to optimize resource allocation and maximize the effectiveness of marketing strategies. Retail companies can tailor strategies to resonate more effectively, leading to a greater response to their marketing efforts.
Retailers with diverse data insights, particularly those emphasizing transaction data, have a better opportunity to connect with and engage consumers who have a higher propensity to spend. By leveraging these datasets, cross-departmental decision-making can be enhanced, ultimately attracting new customers and encouraging consumers to spend more.
Focus on Data-Driven Questions
Remaining competitive requires cultivating an inquisitive mindset. Retail firms should continuously look ahead and take time to assess competitors’ performance, successes and struggles. Besides performance, be prepared to ask questions that will help determine the next steps. A curious mindset demonstrates proactiveness and a commitment to excellence. Some questions to find honest answers to:
- How are my competitors performing?
- Where else are my customers shopping?
- How does my customer retention compare to my competitors’?
- How do my brand’s sales compare across geographies vs. competition?
- How can I adjust my strategy to compete?
Brands must regularly evaluate their consumer base to understand shopping habits. Analyzing shopping locations and comparing them to competitors helps identify potential spending areas and adapt accordingly to market shifts.
As the retail landscape continues to evolve, brands must be agile and data-driven to stay ahead of the curve. By harnessing consumer behavior data, retailers can gain valuable insights into their target audience, optimize resource allocation and make informed decisions. This information can be used to identify potential partners and create products and services that meet the needs of consumers. Major brands like Ulta, Sephora, and Petco have already demonstrated this capability and gained new customers by establishing uncommon partnerships. These brands recognized an unconventional growth opportunity and benefitted from the unique partnerships.
Michael Gunther is VP and Head of Insights at Consumer Edge. He has been at CE for nine years and brings a wealth of experience – spanning 17 years – as a skilled research analyst. In this leadership role, Gunther plays a crucial part in helping clients leverage a broad range of consumer data types to make key business and investment decisions. Before Consumer Edge, Gunther held equity research positions at Sterne Agee CRT, a broker-dealer and equity research firm, and Guggenheim Partners, a global investment and advisory company. He holds the chartered financial analyst (CFA) designation.
