A woman carries bags of J.Crew, Nordstrom, UGG and Victoria’s Secret merchandise at King of Prussia Mall on December 11, 2022 in King of Prussia, Pennsylvania.
Mark Makela | Getty Images
The US economy may not be in recession, but it feels like it is in many businesses across the country.
Take Kroger for example. Inflation-stricken customers are downloading more coupons, cooking at home and switching to cheaper store brands to save money, the grocery giant’s CEO Rodney McMullen told CNBC’s Squawk on the Street earlier this month.
“From what customers tell us, they’re already acting like they’re in a recession,” he said.
Now major retailers are dusting their playbook for a recession — or at least a period of slower sales. Companies have been previewing their strategies for the harder backdrop in recent weeks as they released results for the holiday quarter and full year outlook.
Goal sets up groceries and household goods to boost foot traffic. Macy’s And Walmart trying to get more sales from their most loyal customers. best buy and others are chasing new and exclusive products that could make customers open their wallets and even pay full price.
As the travel and restaurant sectors bounce back, it looks like the ‘rolling recession’ is upon us for the retail sector, even if the economy remains strong. Many retailers are calling for flat to declining sales for this fiscal year, especially if the inflation spurt fades away. It’s a sharp turn from the early years of the pandemic, which was a boom in retail spending.
Here’s a look at some retail strategies.
Customers shop in the grocery aisle of a Target Corp. store in Chicago, Illinois, on Saturday, November 16, 2019.
Daniel Acker | Bloomberg | Getty Images
Focus on everyday objects
Gallons of milk, paper towels and soap. Retailers stock up on such essentials, which shoppers frequently replenish as shoppers think twice about making discretionary purchases.
Target, for example, said it intentionally biased its inventory mix toward groceries and household goods. Total inventory through the end of the fourth fiscal quarter was down 3% year over year, but inventory of discretionary merchandise was down 13% over the same period.
Walmart, the nation’s top-selling grocer, is benefiting from getting a larger portion of its sales from groceries. It has used lower-priced groceries to attract shoppers of all income levels, including more households with annual incomes of more than $100,000.
However, there is a downside to selling evergreen items: they tend to be less profitable.
John David Rainey, Walmart’s chief financial officer, acknowledged this during an earnings call with investors in late February, saying, “Changes in product mix have negatively impacted our margins.”
A shopper carries a Bloomingdale’s bag on Broadway in the SoHo neighborhood of New York, USA on Wednesday, December 28, 2022.
Victor J Blue | Bloomberg | Getty Images
Rely on loyal customers
As things get tougher, retailers are looking to a familiar audience: loyal shoppers.
Macy’s and Costco are among the retailers who want to wring more sales from the tried and tested. Some have even turned membership programs into moneymakers. Walmart is trying to attract more customers to its subscription service, Walmart+, which costs $98 a year or $12.95 a month. Best Buy has the Totaltech program, which costs $199.99 per year. Lululemon has a free and paid membership program that debuted in the fall.
Costco, a membership-based warehouse club, is finding that more and more customers are moving up to Executive, its highest tier of membership. Chief Financial Officer Richard Galanti told investors on a call in early March that it had 30.6 million paid executive memberships at the end of its most recent quarter, accounting for about 45% of its total paying members and accounting for about 73% of global revenue.
At Bloomingdale’s, owned by Macy’s, members of the Loyallist program have driven over 70% of same-store sales, including private label and third-party brands. Members of this program spent 7% year over year at the end of Macy’s fourth quarter, CEO Jeff Gennette told investors.
Kroger’s McMullen told a Bank of America investor conference on Wednesday that its loyal customers typically spend 10 times more than a casual buyer. He said the company wants to get more bang for its buck by “putting people in the rewards cycle” and better personalizing their experience.
Televisions are displayed for sale at a Best Buy store in New York City.
Andrew Kelly | Reuters
On the hunt for novelty and value
As shoppers become more cautious, retailers are racing towards the next hot thing, or at least the thing only they have.
Target expects modest or even declining sales for the coming year, with same-store sales ranging from a low-single-digit decline to a low-single-digit increase for fiscal 2023. Despite this, the discounter is pushing for more exclusive and eye-catching items for customer convenience. Target shoppers will soon be able to get a Starbucks coffee, make a return, and retrieve online purchases without leaving their car. In the coming year, the company will import or export more than 10 own brands.
“In an environment where consumers are making compromises, more of the same will not suffice,” said Christina Hennington, Target’s chief growth officer, at an investor event in New York.
Value is an important part of retailers’ fresh offerings. At Kroger, shoppers will find a new exclusive brand called Smart Way, offering staples like sliced bread and mustard at the lowest possible price.
And at Best Buy, CEO Corie Barry said innovation will help motivate shoppers to upgrade their phones or choose new video game consoles, especially in the second half of the year.
“We think there will be a desire to stimulate these replacement cycles in the future,” Barry said on a call with reporters in early March. “Obviously our vendors are very keen on creating the next hot product and we are the best place – and really the only place – for them to highlight these new technological advances.”
Marco Geber | Digital Vision | Getty Images
Savvier about discounts
When sales plummet, retailers want to make sure every dollar counts.
Profit margins are getting more attention from investors, particularly as retailers follow a year in which they have been hit with higher costs for labour, raw materials and shipping while also being impacted by the reduction in excess inventory.
Some retailers are rethinking their approach to discounts while questioning other costs, such as B. Giving away free shipping or no strings attached deliveries.
Macy’s has become more strategic in its pricing. Rather than reducing merchandise online and in each store, it can use dynamic pricing to make adjustments in places where that price change can make a difference. It can send targeted discounts to a specific shopper based on what he or she has browsed or purchased.
Speaking to CNBC, CEO Jeff Gennette said the company is “in the early innings of personalized offerings, but there are huge dividends for that.” He called it one of the company’s growth drivers for the coming year.
Some retailers have also made free shipping a benefit only for dedicated or higher-spend customers. Nikefor example, offers free shipping for buyers – if they share their personal information by joining its membership program.
Amazon, a retailer often associated with no shipping and delivery fees, also made a notable change recently. As of late February, the e-commerce giant began charging delivery fees for grocery orders under $150. It had previously offered free Amazon Fresh delivery for Prime members who spent more than $35.
Comments are closed, but trackbacks and pingbacks are open.