Retail Winter Survival

- October 11, 2010 by Michele Autenrieth Brown

This year’s holiday shopping season is looking like anything but a winter wonderland. Seasonal employment, rising prices, shopping hangover and tax codes will likely create the perfect storm for stores and shoppers alike. And though it doesn’t show signs of stopping, retailers can take steps to weather the elements as best they can.

I am not an economist. But it’s our job to be forward-looking, preparing our clients for what is to come and provide the solutions to help build their business. I am an avid reader that can connect the dots…and the dot-to-dot on this one makes me rather skittish. I sense a perfect storm brewing.

The Harsh Elements

In preparation for the holiday shopping season, stores are gearing up the machine to hire seasonal help. That’s more than 200,000 seasonal workers, according to just the numbers announced by Best Buy, Toys R Us, UPS and Kohl’s. And it’s good news in the short term, since employment numbers will likely reflect an increase on the positive side. But the bad news? Much like when the nation was done with the 100,000 census workers, releasing 200,000 seasonal workers at the end of a holiday quarter will lead to lower job numbers and market uncertainty.

Then there’s the fact that retailers are looking at ways to increase prices. After all, as their costs go up, many have been absorbing the difference. That is not a long-term business strategy, and the tipping point has already begun with Walmart starting to raise prices in August and other retailers following suit. But if your customers don’t like your price—or you are considered the low price leader and you can’t deliver—get ready for shopper erosion to your competitor. Now customers have two lists, and you can only hope you get your fair share of their split shopping trip. Those on a budget hunker down more. Others who were seeing the benefits of a recovery start to question whether they are truly past the doom and hunker down for part two. So much for discretionary spending.

And though the holidays mean gifts and celebrations, retailers will have a tough time putting on an entirely optimistic face this season. Reuters reports an average of 48% of the people who actually make a holiday budget stick to it. The rest? They get love notes from their banks in January and the belt tightening continues.

Fun so far? Here’s another: tax code. Yup, nothing says buzz kill like the tax code. So much in fact that both Democrats and Republicans are putting off talking taxes until after Thanksgiving. On the table? Changes in the child tax credit and to families who file joint returns, among other things, meaning potentially higher taxes and less take-home pay. But the politicos need to make some decisions that will have a trickle-down effect in more way than one. Payroll processing companies like ADP and others need at least 30 days to make the system changes, meaning the average family is left either overpaying in January—a.k.a. less take-home pay—or possibly paying more at the end of the year. Good times. 

You have no doubt been affected by the economic downturn in one way or another. What does not help is when news stories continue to trumpet the tune of doom. Job losses, numbers that fail to meet expectations, higher prices and even higher taxes. The gloomy forecast makes consumers play it safe and not spend. Or, they look for relief somewhere, somehow.

Weathering the Storm

So if you are a retailer, how can you offer a lifeline during first quarter? The answer depends on your specific business. That said, here are a few we are evaluating for our clients:

Escalated offers: We are helping some of our clients create sales promotions that provide added value the more the customer spends. Spend $30, get a little extra back. Spend $50 get a little more. Price escalation plans drive incremental sales and drive people to trial. We have seen this plan work before and think now, more than ever, it will prove beneficial.

Group buying platforms: Depending on the size and scope of your business, Groupon or the many other group buying platforms might help spur sales at slow times. The “good for only 24 hours” message creates a sense of urgency if the offer is right. Groupon has a lot of success stories and some redemption horror stories. So be sure to look at redemption levels for like businesses and create tight guidelines for redemptions to be sure you get your return on investment.

Social media offers: Einstein Bros Bagels has created a well-documented, successful model for social media offers that allow coupons to be posted to Facebook for a limited time giving the company a better chance to track redemption and their liability. The customer gets a free bagel and typically makes a purchase, and the store gets foot traffic and creates trial for their product. 

Will January be the perfect storm that sends your customers into hiding? Hopefully not. But if you rely only on the same old forecast from years past and not strategic advice with the customer experience in mind, get ready to be left out in the cold.

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