Industry Outlook: Retail
Surviving the ups and downs of consumer sentiment
INSIGHT ARTICLE |
Even as the U.S. economy has flashed warning signs of a looming slowdown, the consumer has been a pillar of strength by comparison, helping to extend the longest economic expansion in American history. Consumer confidence has been strong by historical standards, and consumer spending—which makes up about two-thirds of economic activity—has kept the economy growing at a pace that still exceeds the long-term average of 1.8%.
It may not last, though. Consumer confidence has shown signs of volatility this year as the global trade war and geopolitical headwinds have begun to trickle down to spending decisions. “There are significant global and domestic uncertainties that will keep consumers cautious spenders,” even as rising incomes buoy their bank accounts, Richard Curtin of the University of Michigan wrote in releasing preliminary results from its October surveys of consumer sentiment. Indeed, a closer look at the trend in retail sales indicates that sales growth may have peaked in the middle part of the year.
What’s a middle market retailer to do? Sharpen your strategy for discounts and promotions
Today’s consumer has shown a penchant for looking for discounts. According to the National Retail Federation, the majority of shoppers were looking for discounts and sales before they made purchases during the back-toschool season.
But this mentality is not isolated to the back-to-school season, and it’s putting a squeeze on middle market retailers who don’t adapt.
Consider the holiday shopping season, when big-box retailers have a decided advantage. As online sales continue to grow, they simply have a greater ability to scale and offer more product diversity and meet the demand for immediate and free shipping.
That means that middle market retailers need to find ways to be creative to compete. One Accenture survey found that 82% of shoppers said the top factor that determines whether or not they will travel to a brick-and-mortar location is price. For smaller retailers that don’t have the size and scale of big-box competitors, they should consider capitalizing on smart promotional and discount strategies as one method to attract more customers away from big-box competitors.
Two ideas to consider:
Start early. Retailers may be able to discount early this holiday season to capture sales, especially if consumers plan to accelerate purchases to beat perceived price increases resulting from tariffs. To be sure, this discounting strategy, while it may boost sales, also has risks—namely, the pressure it puts on margins. Bloomberg Intelligence reported that the average ticket prices dropped sharply in September, both in brick-andmortar locations as well as online.
Plan carefully. Then execute. The timing and extent of discounts and promotions are often decisions made on short notice, which can lead to a poorly executed strategy. But with proper planning and execution, a successful discount strategy can help middle market retailers compete against the bigger competition—and weather the ups and downs of shifting consumer sentiment.
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