I heard a fact a yesterday from the Chairman and CEO of Williams Sonoma, Howard Lester that US retailers in general will have made losses of around 25% from mid 2008 to the end of 2009.
Obviously there have been a number of ways that these retailers have had to combat the hit to their bottom line. Restructuring has been the obvious one I have heard. Companies are using their assets and working smarter. As a result unemployment has now risen to $5.1M people or around 9%. Companies are changing they way they do things, finding new ways to cut expenditure to adapt in to this new economy.
Another tool being used in this environment is the good old SALE. In an attempt to fight for the consumer’s dollar, some retailers are cutting into their margins just to get people into their stores. Take Saks on Fifth Avenue as an example. Last Christmas they advertised 70% off their entire store! Macy’s is permanently on sale. I’ve seen $5 deals across stores here, BOGOF deals on clothing lines, 40-60% off, then another 10% already marked down prices when you get to the checkout. But what does that do to a brand and the effectiveness of a sale? Well we’re seeing a number of retail outlets fold, Abercrombie and Fitch, Dockers. Pottery Barn (who are part of the Williams Sonoma group) have tried 30% off the range in store but it doesn’t work. If the whole of the US is on offer consumers begin to expect such low prices all the time, which is clearly not sustainable to retailers.
So the key is to use a sale selectively and strategically. Nordstrom and Bloomindales now only have 2 sales per year, a Stocktake sale at the start of the year, and mid season sale half way through the year. Macy’s yesterday had a 1 day sale which they heavily advertised online and TV. By doing so retailers give their sales more credibility and therefore gives the customer more sense of urgency and excitement. Moreover it’s usually used on stock which are just out of season or need to be shifted, stock that has already been accounted for so it doesn’t hurt their bottom line as much.
In my opinion some of the better strategies some retailers are addressing the problem with are:
• Through selected offers via their loyalty programs
• Interest free periods
• Free shipping within the US
• Targetted eDM’s based on individual customer profiles from the local store Manager
• Guarantees on items
• Good returns policies
All of these are methods of adding value, value around their brand to give customers a good experience so they will come back for repeat business and spread the word.
