2016/05/25

Retailers In A Race To The Bottom (And How To Stop It)

At Shoptalk, a retail conference held last week in Las Vegas, the word “beneficent” was a introduced during the closing keynote.

Beneficent: Doing good or causing good to be done; conferring benefits; kindly in action or purpose.

What does this have to do with retail? Read on.
A lot has been said about why retailers are melting down, some of it true and some of it speculative. But increasingly it’s beginning to look like same major macro economic trends are making an impact and perhaps it’s time to take a good long look at how retailers are addressing them.

To recap: A number of large national retailers reporting pretty dismal quarterly sales results, such as Nordstrom’s 64% drop in profits and Macy’sstring of quarterly declines. Department stores and luxury retail was particularly hard hit, while discount department stores (mass merchants) had only marginally better news.

Home goods and home improvement retailers are performing well as then tend to do in spring when home improvement projects are in earnest. Off -price and extreme value chains (T.J. Maxx, Home Goods, Marshalls ) are also doing well as shoppers increasingly seek out discounted goods, a trend likely to continue for quite some time.
To capture this shopper, department stores such as Macy’s, Saks 5th Ave. and Nordstrom are opening off-price formats and even value-positioned Kohl’s has a lower priced format in the works called Off-Aisle. It’s the right move for retailers trying to serve changing consumers, but it also means that larger flagship stores will keep closing as off-price formats replace the original or existing concepts.

It’s tiresome to harp on Millennials but as this group makes up a larger and larger part of the U.S. consumer market, it will also dictate what’s happening at retail.
Here’s some chilling statistics.

Because enabling consumers to make purchases is one way to increase sales.
There are 80 million Millennials that very soon will be roughly one third of all spending in the U.S. A majority of them don’t use credit cards or if they do, don’t carry a balance. That same majority is living hand to mouth anddoesn’t even have $400 on hand for an emergency.

The average college student today graduates with $30,000 in debt and many owe upwards of $100,000 for advanced degrees.

Housing costs are eating up a much larger chunk of this group’s take home pay than any that came before, close to half of the monthly income. Most Millennials are renters, as they’re either not ready to buy a home or unable to qualify for a mortgage thanks to tighter lending rules following the housing crash.

Rents are on the rise as are health care costs.
There’s a lot of chatter about how younger consumers are opting to spend on experiences instead of products. They are living smaller with less, or still in their parents basements.

But it’s not so much a choice as a necessity. They are spending less because they have less.

Retailers are busily building concepts and sourcing suppliers to manufacture goods more quickly for less. They are opening low-price extreme-value formats to undercut their own brands.

It’s a race to the bottom, to capture a part of the ever shrinking budget.
We’re in a heated election cycle with the economy is at the center of it. All of this impacts retailers quite dramatically. Maybe instead of trying to source goods more cheaply, it makes more sense to examine how to make more income available to consumers.

Higher minimum wages, tuition relief, health care reform—all social issues that business typically lobbies against—would go a long way toward actually benefitting retailers by freeing up consumer dollars and getting them spending.
Many large retailers including Macy’s and Kohl’s have relationships with colleges and universities. Why not help fund the educations of those inside the buildings with their name on it?

It’s tough sell, to get big business behind social issues that seem counter-intuitive. But instead of fighting higher minimum wages, it’s a better bet to get more money into customers pockets, not just with hourly wage boosts but with genuine economic reform that will help boost the buying power of the American worker.
Beneficent: Doing good or causing good to be done; conferring benefits; kindly in action or purpose.

Or, help yourself by helping others. It’s good business.
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