With the positive effects of tax rebates helping to spike sales in May, retailers are now focusing on increasing sales for the the balance of 2008. Most specifically, back to school season and the holidays are on their mind and the prevailing wisdom is that retailers will have to turn to new media and other creative ways to drive sales without falling into the discounting trap.
“Once you strip out the effect of tax rebates the spending plans of most Americans add up to a pretty weak retail environment,” says Frank Badillo, Senior Economist at TNS Retail Forward. “We’ve been pretty sober about short-term retail prospects since last fall.”
Given the sober outlook on spending, Wall Street analysts have been favoring dollar stores and Wal-Mart 9.8% bounce in May helped validate forecasts that discounters would thrive during the economic downturn, while luxury brands would likely struggle. Aggressive promotions from chains such as Neiman Marcus fueled the concern that price cuts might be the common path to reach sales goals. Throw in some intensified pressure from Wall Street to hit the numbers for the fourth quarter and you have a perfect storm of discounting for the holiday season, and maybe for the back-to-school season.
“I don’t think you’ll see anything desperate during back to school season,” says Mort Goldstrom, VP advertising at the Newspaper Association of America. “But it’s very clear to me that consumers are not going to spend as much this year. The temptation will be to sell at regular prices during both seasons for a short period of time and then attract customer through heavy discounts.”
Some major retailers are finding creative ways to manage discounting pressures for the back to school season. The biggest noise was made by Apple, which is using its own stores as well as major partners like Best Buy to allow college students to buy a Mac computer and get a free iPod. The Mac products, if Apple’s strategy goes according to plan, will sell close to retail price.
Wal-Mart has started their own Facebook Group, called Roommate Style Match, for college students. According to a company statement it hopes that by promoting their products through Facebook’s social media site that it will help to bring in more business from younger consumers for this years school season and back-to-school shopping in the future.
Staples kicked off its annual Back-to-School campaign May 1 with the addition of a new cause initiative, DoSomething101. com. The retailer partnered with youth-focused, nonprofit DoSomething.org and American Idol winner Jordin Sparks to motivate students on summer vacation to collect school supplies for children in need.
Experts polled by Retail Touchpoints recommended the following three best practices for thriving in the upcoming holiday seasons, despite the economic challenges:
• Focus on multichannel customer data: Specialty retailers will need to treat customer data with extra care this year. The customer that buys from a specialty retailer in a discounted environment may actually be shopping that store because of those discounts. And that’s not what a high-end retailer is aiming for. So collecting preference and purchase data will show why a customer bought, what they thought of the experience, their impression of the brand and expectations for their next experience. “We understand that high-end brand retailers can’t be ignorant about price and product pressure,” says Nelson Pascua as Vice President of Client Services – Retail for customer feedback provider Medallia. “But they can’t fall into the trap of consistent discounting. They have to win on customer experience and that experience can and must be measured. Strong brands can still win, but they have to know their customers.”
• Build loyalty now: At the very least, smart retailers that need to bow to pricing pressures and tax rebates to drive traffic can do so with future business in mind. Badillo points out that several retailers offered gift cards that increased the value of tax rebate checks by 10 to 30 percent. Among those retailers: Kroger Supermarkets, Sears, Kmart, Pay Less, , Lands’ End, and RadioShack. Gift cards A 2007 Intuit study showed that gift cards were effective loyalty builders and that more than 60% of gift cards customers spend them spend more than the face value of the card.
• Focus on pull-through advertising: “I think retailers need to be much more targeted with their advertising and much smarter about pulling through products,” says Goldstrom. He sees this issue as the defining difference between holiday retailing 2007 and 2008. Goldstrom doesn’t believe retailers will reduce inventories compared to previous years, but they will have a harder time moving it off the shelves. He says proper inventory management demands pull-through ads. To that end he expects a sharp increase in newspaper FSIs this year over last year, despite the economy.