Are You Ready for the Recovery?

Are You Ready for the Recovery?
August 3, 2009 Revionics

This economy has been tough for most consumers. The average net worth of individuals has decreased by more than 20%, and on average, 401Ks have decreased in value by 30-40%. Unemployment rates are the highest they have been in over 25 years, and gas prices are unpredictable.

The challenging economy caught many retailers off guard. During the holiday season, for example, many retailers had excessive inventory levels left on their store shelves. Private label brands have seen unprecedented growth as a substitute for national brands, and three out of four categories are losing buyers.

Undoubtedly, today’s consumer has changed. Families are eating out less often. Shopping trips are less frequent, and consumers are stocking up on items instead of often running to the store to pick up a few items. More people are using coupons and responses to ad offers as they shop around more for the best deals.

Many people want to know: Where is our economy heading? Clearly, there are early signs that banks are starting to slowly lend again, business confidence is returning, durable goods sales are increasing, and home sales are finally rebounding. Most economists predict that our economy will see positive GDP growth in 2010, if not sooner.

Despite an improving economy, however, many believe that consumers have made long-term changes to the way they shop. It is to be expected that many consumers will continue this new economic behavior that they have adopted during the recession. With an improving economy on the horizon, a retailer can take steps to get ready for the impending recovery:

  • Retailers must monitor their consumer demand signal more frequently. By analyzing their data, a retailer will better see changing consumer sensitivities (elasticity) to prices and promotions. On elastic items, demand will change as price changes. Demand is less influenced by price changes on inelastic items.
  • Retailers must review their price strategy effectiveness. Price strategy cannot be constant; it must change with the economy. Retailers must proactively manage costs and margins while reducing competitors’ control of their strategy. Retailers must reduce reactive responses by leveraging predicative analysis. To do this, they must understand price versus demand impacts with changing elasticities.
  • Retailers must improve promotions and offers. They must know their objectives: which products to promote, which consumers to target, which offers meet their goals, as well as what are their predicted results. Also, retailers need to leverage advanced tools that will identify the best items to promote and the best prices for those items.
  • Retailers must mark down items more optimally. They must free up working capital tied up in unnecessary inventory by using item-store demand to predict inventory depletion as a function of time and place as well as increasing sell-thru and margin.
  • Retailers must build upon the shift to private label products solidified during the recession. Private labels are growing, and when consumers are able to spend more money, they need not abandon these private label products for the benefit of national brands. Improving marketing and messaging around private labeled items is essential as national brands try to reclaim lost ground.

What will the economy ahead look like? As the economy recovers, will consumer behavior and spending patterns return to peaks that we saw before the recession? Will high jobless rates mitigate the pace of the recovery? These are some of many of the questions consumers and retailers are thinking about. Nobody knows the answer for sure. Bottom line, as retailers and consumers, we need to be prepared for anything! Learn how Revionics’ pricing software can help your retail business!