Retail 2010 Outlook: Honed Value, Assortment Strategies Key

As 2010 gets underway, the latest rounds of research and data on consumer shopping/purchasing trends and retail results continue to show glimmers of improvement, while supporting the by-now-familiar premise that changed consumer behaviors are very likely here to stay—at least for the foreseeable future.

Here’s a summary of key overall retail outlook indicators, and strategic 2010 advice for food retailers from retail consultancy Willard Bishop.

Overall Outlook:  2.5% Sales Growth

The National Retail Federation’s 2010 outlook, released this week, calls for overall retail industry sales growth (excluding automobiles, gas stations and restaurants) of 2.5%.
 
That’s a decided improvement over last year’s 2.5% full-year sales decline, per NRF—although ’09 holiday sales did surpass NRF’s 1% growth projection.  (Total U.S. retail sales were up 3.6% between Nov. 1 and Dec. 24, according to MasterCard Advisers SpendingPulse data.)

NRF expects consumer spending to lag overall economic growth this year, but grow at a rate of 2% to 2.5%. The slight spending growth will come as a result of gradually rising consumer confidence in line with continued signs of improvement in the economy over the course of 2010, said NRF chief economist Rosalind Wells. 

“While we still expect shoppers to continue to be frugal with their discretionary spending, retailers will soon be able to reap the benefits of leaner, smarter inventories and a year and a half of pent up consumer demand,” Wells added.

Trade factors (particularly strong exports), a turnaround in the inventory cycle, and federal government spending are among the factors expected to contribute to economic recovery.

Accelerated Saving Expected To Continue

Growing evidence of consumers’ determination to build their savings via more conservative buying and financial practices is one factor tempering the near-term outlook for all retail classes of trade.
 
Pointing to a December Federal Reserve Z.1 Flow of Funds report confirming that Americans are saving and reducing debt at levels far exceeding those of recent years, as well as consumer surveys,  Mintel Compermedia says there is little doubt that these patterns will continue in 2010. 

Similarly, just-released data from American Express’s Spending & Saving Tracker show 89% of the general population having set clear financial goals for 2010, and 83% having a specific savings strategy (on average, goals call for saving $14,000, or about 22% of household income).

Nearly one-third of consumers overall (and 42% of young professionals) say they’ll continue cutting back on smaller discretionary purchases/spending in 2010 as one means of saving.

Willard Bishop’s Key 2010 Food Retailer Strategies

While noting rising consumer confidence and other positive economic indicators, Willard Bishop also points out that food retailers must now contend with challenging dynamics in place as a result of last year’s “disastrous” economy.

These include: Significant investment in pricing/promotion in order to maintain customer counts and sales; increased sales and penetration of private label as shoppers trade down for value; and accelerated movement of trips/shoppers from traditional supermarkets to “extreme value” formats like limited-assortment and dollar stores.

Bishop’s “four commandments” for food retailers in 2010, as outlined by partner Craig Rosenblum in a “Competitive Edge” report:

• Be aware of “false positives.”  While food inflation in 2007/2008 enabled retailers to price up and realize sales/profit gains even as transactions and unit volumes declined, that dynamic is unlikely to hold if inflation returns in 2010. Because shoppers will continue to be value-conscious, inflation might serve only to increase trading-down behavior, Rosenblum warned.
  
  
• Win the value battle. To win the value battle without further straining thin margins, food retailers will need to cut prices “in a purposeful way, on targeted items where cuts can maximize total-store price-image benefits,” according to Rosenblum. They will also need to maximize return on every markdown dollar invested (identify which promotions truly drive incremental sales).
  
  
• Realize all benefits of assortment optimization. Focusing on getting the assortment right, rather than competing on the basis of center-store variety, is the key to improved shopper satisfaction, cash flow, return-on-inventory-investment, lower in-store labor costs and building a pool of working capital, stresses Rosenblum.
    
• Recognize strategic buying opportunities. Rather than adopt a “bunker mentality,” retailers that have managed to maintain or enhance their cash positions can still take advantage of opportunities to buy prime retail locations being vacated by failing specialty retailers and other competitors.

“We’re not likely to see a quick return to food retailing ‘normalcy,’” sums up Rosenblum. “Strong retailers will recognize the value orientation of today’s shoppers,” sharpen their pricing, increase their promotion investment returns and in-store productivity, and “smartly expand."  --K. Lukovitz