Credit Crisis: The Smell of Fear
As “Needs” Out Do “Wants” Retailers Need to Adjust Sales Strategy
In the last few weeks, the stock market has seen more ups and downs than Coney Island’s Cyclone, with none of the fun and all of the nausea. However, even before banks and insurance companies began to tank, sales predictions for the holiday season weren’t exactly stellar. Many of the experts Picture Business spoke with for the holiday issue (August) were pretty certain consumers would be tightening their belts. But few thought the consumer electronics category would take a big hit-until now.
Back in August, Jason Goldberg, VP marketing, MTI, state, “Obviously, we’re not in a very good economic climate, but consumer electronics in general has weathered the storm far better than most other product categories. What tends to happen in the tight economic times is consumers tell us they’re going to spend considerably less on gifts than the year before. But in practice they spend very close to what they’ve spent in the past.”
Want Verses Need
Jeff Green, president and CEO of Jeff Green Partners, also thought electronics would continue to be strong compared to apparel, furniture and toy retailers. “But because of the credit crunch,” Green now says, “people are going to be spending on needs, not wants, which is a real big issue as it relates to consumer electronics.”
“But when you think about most of (the product offered) by photo and consumer electronics stores, those are wants. And that’s where I really think we’re going to see some big hits. For instance,” he notes, “Circuit City just put its entire expansion on hold though 2010 and its current sales are down,” The company, whose stock once sold for $9.65 per share and recently closed at .57 cents, has also put the brakes on expansion of its CarMax dealerships. “Yet, Best Buy, which was also down (sales were off 19 percent in the second quarter but rose 6.7% in the third quarter), is not down anywhere near that,” Green added. According to the company, the earning drop was partly due to increased spending for store enhancements and the rollout of its Best Buy Mobile concept, which was completed in August. Best Buy also plans to open about 150 new stores globally in 2009, which is up from its previous estimate of about 130 to 135 stores.
Even though Wal-Mart, the world’s largest retailer, had an increase of 8.8% over third quarter fiscal year 2007, it has already slashed prices on popular toys for Christmas. So has KB Toys, which cut prices on more than 200 items to $10 or less so consumers can get more for their money. “It will be interesting to see if Christmas will really be all about necessities (though not for children),” wonders Green.
So, does this mean the hot item this year will be gift cards to the local supermarket? “I think, as always, (retailers) with hot items will do well, especially with kids and grand kids, states Jim Bieri, CEO, The Bieri Company, a leading national retail real estate consulting firm. “My experience in watching these things over the years is, if you have something hot-it’s the right look and fashion-you’re still going to move it out the door.”
“I think the second major category is those that offer real value, whether it’s every day value like Wal-Mart or Costco, or those that do early discounting,” In addition, notes Bieri, many retailers have planned for reduced sales and traffic. “People don’t buy like they used to, “ he says. “For instance, in the past people bought for the fall season eight months in advance. The buying cycle has really shortened up for many retailers, “ Another reason for lackluster sales, he notes, is many people have all the stuff they need or maybe they’re recognizing they don’t need so much stuff.
Green believes, this year, whether people have money or not, they will start cutting back because they’re going to be nervous about their adjustable mortgages, and high fuel and food prices. In turn, retailers will need to buy smart, “ states Green, “which means they shouldn’t over buy for the season. The worst thing that can happen is you’re stuck with too much merchandise.”
“The days of ‘euphoric’ spending have gone by the wayside,” adds Bieri. “We were a nation on credit, and we continue to be on credit because that’s how we are.” So what’s a retailer to do? “Smaller retailers,” says Bieri, “as always, have to be somewhat unique. They have to really push perception of value. The small retailer can give value to their customers via service and personal interaction as much as by the product itself. The advantage a small retailer has over chain shopping is creating relationships with their customers,” he reiterates. “You can’t go into your shell. You can’t let (the economy) be a self-fulfilling prophecy. Beyond extending yourself and trying to form relationships to the customer, what else are you going to sell that customer? Think it out and make it available to them,” concludes Bieri.
On October 13, the stock market rallied and had its biggest gain ever, but plummeted again on a day or two later. However, consumers and retailers are hanging in there, for better or for worst. And for some like Wal-Mart and Costco, tough times for consumers can mean boom times for them. As Green predicts, “The crowds at Wal-Mart are going to be amazing”