Are you a retail leader looking for a game plan to stay ahead during an economic downturn?
Our Recession Playbook has you covered with 8 actionable strategies to secure your success.
Don’t let a recession bring you down – read on to learn how to come out on top.
It’s no secret that the post-pandemic retail landscape is more complex than ever. With an uncertain economic outlook, many store owners and national retailers are faced with decreasing sales and limited resources to build up their businesses. But there’s still hope!
As Peter Lynch, the famed investor who averaged between 1977 and 1990 a 29.2% annual return, consistently more than double the S&P 500, making it the best-performing mutual fund in the world, once said:
By applying the lesson in this retail recession playbook, you can position yourself for success in any market conditions and strengthen your competitive advantage in the long term.
In this blog post, we’ll discuss some of the unique strategies and approaches retailers have used to succeed during recessions or downturns in consumer spending. Whether you hope to hold on or grow, these time-tested tactics will help you drive revenue even during tough times.
Rule 1: Do something…but not anything.
What’s the Next Move to Boost Your Retail Business?
It’s tough to decide how to improve your retail business – should you reformat existing stores, invest in branding, open new stores, change formats, or try something else? What’s clear is that you can’t do nothing.
To find the best solution, you need to analyze your customers in each of your product categories as well as your geographic market. Who’s still shopping with you? Who’s spending the most? Who’s switched to competitors? And why?
Perhaps some customers are visiting but not buying much because they can’t find what they want. By capturing more of their spending, you could boost sales and profit potential for your existing stores beyond what you previously thought possible.
By tweaking your product assortment, store environment, and layout, you could attract a particular type of customer more effectively. Managers who take these steps could multiply their success and remain competitive with rivals.
Rule 2: Go where there’s room to grow.
In tough economic times, managers often rush to implement a buffet of new programs and initiatives to improve profits. They play with store hours, change staffing systems, reallocate floor space, tweak loyalty programs, introduce massive promotions, or overhaul merchandise and marketing departments.
However, these initiatives can prove costly and ineffective without a clear understanding of where the most profitable opportunities are to focus their efforts. And at a time when resources are limited, getting the highest returns is vital.
To avoid this mistake, it’s essential to identify areas of opportunity and use them to guide a targeted, measured response.
This can help to ensure that initiatives are more likely to succeed and resources are used wisely.
At its core, this approach involves understanding the concept of “headroom,” or the potential market share available to a company.
By going where the headroom is, retailers can make the most of their resources and focus on the initiatives that are more likely to work.
Rule 3: Close the customer needs gap.
While most retailers have shoppers who could spend more money, getting them to do so is challenging.
It’s not enough to provide more of the same – you have to give them what they want.
This means stepping away from the incremental optimization approach that may have worked in the past.
You may ask, “How do we win over customers and tackle retail headroom?”
Surviving an economic downturn means identifying and closing the needs-offer gaps in your business.
Unfortunately, many retailers fail to do this due to overreliance on sales data. Although this information helps track inventory and buying trends, it doesn’t account for what customers might be buying elsewhere.
To succeed, retailers must do the work required to understand the needs-offer gaps, even if it means straying from their established sales patterns.
The painful truth: historical sales data can only reveal what has sold in the past, not what could be sold in the future.
Retailers can turn their business around and win over hesitant shoppers by taking steps to understand their customers’ needs and preferences better.
FOR THE NEXT SET OF RULES, LET’S GET TACTICAL.
As the economy continues to face uncertainty, major retailers like Target, Macy’s, and Kroger are deploying their recessionary tactics to brace themselves for the challenging year ahead.
These strategies range from stocking up on essential goods to securing sales from loyalties. For example, Kroger reports that customers are tightening their belts by downloading coupons, opting for private-label brands, and cooking meals at home to save money.
Target is ramping up its food and household products to spark consumer interest, while Macy’s and Walmart are eyeing their loyalists for more sales.
Meanwhile, Best Buy and others are looking for unique and sought-after products that encourage shoppers to open their wallets.
The retail sector is preparing for a possible “rolling recession” that is expected to impact sales, so they are hunkering down to weather the storm.
Rule 4: Zero in on everyday items.
To meet the current needs of their customers, Target has intentionally shifted their inventory mix towards food and household essentials.
As a result, their inventory of discretionary merchandise has dropped by 13% year-over-year as of the close of its 2022.
This strategic move ensures they provide the items their customers need most during these uncertain times.
Here are 5 reasons this is a smart strategy:
- Everyday products are essential to consumers
- They’re often less expensive and typically purchased more frequently than other items, increasing retailers’ sales
- Consumers are more likely to be loyal to brands that offer everyday products
- Everyday products are generally less likely to be impacted by economic downturns
- Offering a wide variety of everyday products can attract new customers
Rule 5: Rely on loyal customers.
One of the primary reasons why loyalty programs work is that they help to increase customer retention. Studies have shown that customers who are part of a loyalty program are likelier to continue doing business with a company than those who are not.
Not only that, they help increase customer spending. And, of course, Loyalty programs also help to drive repeat business.
Here are 5 retailers who are running with this strategy:
- Retailers like Macy’s and Costco are finding new ways to boost sales, and their membership programs are taking center stage
- Walmart’s subscription service, Walmart+, aims to attract more customers, while Best Buy offers its Totaltech program
- At Lululemon, both free and paid membership options debuted in the fall
- Costco is seeing a surge in customers upgrading to its top-tier Executive membership
- While at Macy’s-owned Bloomingdale’s, over 70% of same-store sales are driven by members of its Loyallist program
- Kroger’s CEO recently shared that loyal customers spend 10x more than occasional shoppers
Rule 6: Focus on newness and value.
Retailers feel pressure to keep up with the changing market as customers become more discerning in purchasing decisions.
To stay ahead of the competition, companies are shifting focus toward offering unique products that cannot be found anywhere else.
Target, for instance, has announced plans to launch or expand more than 10 of its own private brands in the next year. “In today’s economy, consumers are looking for something new and different,” explained Christina Hennington, Target’s chief growth officer. “We need to give them what they want to stay relevant.”
Here are 3 reasons why this is a smart strategy:
- New products attract new customers who may not have shopped in your store in the past
- If customers know that a retailer is constantly introducing new products, they are likelier to continue shopping there as they will want to take advantage of the latest items
- It can also lead to increased customer engagement. This engagement can take many forms, such as visiting the store more often, following the store on social media, or signing up for newsletters. All of these activities can lead to increased sales and improved customer loyalty
Rule 7: Get discount savvy.
Retailers aim to maximize profit amid declining sales, and Macy’s is leading the way with a new pricing strategy. Instead of blanket markdowns, the store uses dynamic pricing to modify prices only where it makes a notable impact.
Furthermore, targeted discounts catered to individual shoppers based on their browsing or purchase history drive sales and increase customer loyalty.
Here are 3 reasons why this is a smart strategy:
- A study conducted by Cornell University found that businesses that implemented dynamic pricing saw a 9-15% increase in revenue. This is because dynamic pricing allows retailers to charge different prices to different customers based on demand, which can help to maximize profits
- Dynamic pricing can also lead to improved customer satisfaction. This is because customers are more likely to find a price they are willing to pay when different prices are available. Additionally, dynamic pricing can help stores better match their prices with customers’ perceived value
- Dynamic pricing can also help businesses to reduce their costs. This is because retailers can use data from previous sales to set prices that will minimize the amount of unsold inventory. Additionally, dynamic pricing can help businesses to avoid the need for markdowns, which can be costly
Rule 8: Don’t give free shipping to everyone all the time.
As all retailers know, free shipping is quite costly, and as retailers absorb the costs, it eats into profits.
But as the average online purchase return rate is 15%-30%, free shipping may also encourage customers to buy more than they need, possibly driving these return rates.
As such, some retailers are turning free shipping into a perk reserved only for high-spenders or loyalty programs.
For example, Nike uses free shipping as the carrot needed to incentivize shoppers to gather personal data from their loyal program.
As The Hustle recently reported, “Kiss your free returns goodbye.” And one headline from The Atlantic boldly declared that “The Free-Returns Party Is Over.”
- In 2022, about 41% of retailers reportedly charged additional fees for returns, compared to 33% in the previous year
- Popular retailers like DSW, Abercrombie & Fitch, and LL Bean are among those passing on the cost to customers
- Even Amazon, a pioneer in hassle-free online shopping, started charging a small fee for dropping off returns at select UPS stores
- However, this policy comes at a cost. Customers are increasingly dissatisfied with the added fees and believe that retailers should absorb the cost of returns
- In fact, over half say retailers should cover the expenses, and 62% would switch brands if their return experience is poor
- Most retailers still do not charge customers for in-store returns, but many prefer the convenience of returning items online
IT ALL COMES DOWN TO THIS.
The recession has changed the retail landscape in huge ways, and understanding these business rules can help businesses stay competitive.
Whether you focus on newness and value with everyday items, rely on loyal customers, or take a discount-savvy approach, these strategies can make all the difference for any retailer in today’s economy.
If you’re looking to make positive changes to your retail strategy during this season of uncertainty and need help with your retail environment, customer experience, or store build, contact our team to get a project plan and quote.
It pays to be proactive during tough economic times; ask retailers who successfully rode out the Great Recession of 2008!