- September 21st, 2015
- OR SUBSCRIBE VIA RSS
From Flash Sales to Dollar Stores: Surprising Ways the Recovering Economy Could Hurt, Change Retail
You can tell the recovering U.S. economy has far-reaching implications when it begins influencing the opening and closing hours of shops in Paris. And for some retailers, this could pose fresh challenges to their sitting business models.
Several retail concepts, and even geographically distinct merchants, are learning that the regained economy does not quite fit their frameworks. Turns out that several otherwise positive benefits of strong spending, such as smaller inventories, bigger crowds and a willingness to spend more for service, may be signaling retailers to reconsider their strategic designs and possibly their outlets.
This is not necessarily bad for consumers or the retail industry, since the survival of the fitting room also ensures higher profits and, ideally, more memorable customer experiences. However, when consumer confidence results in changes to consumer behavior, it in turn shapes retailer behavior, and so on. If recessionary shoppers expected fast checkouts, anytime accessibility and three-day shipping, just imagine what good-economy shoppers demand. Some retailers are finding out.
Following are a few examples of how the recovering economy could be affecting different retail models:
Luxury flash-sale merchant Gilt on Sept. 8 opened “Gilt by Appointment,” a spot where pop-up store meets personal fashion consultant. While the effort may appear to be an extension of Gilt’s get-it-now-or-lose-it-forever model, the effort may also be in response to the recovering economy and greater consumer demand for the kinds of products it sells. With popular brand inventories picked through, it may be difficult for flash-sale merchants to locate, stock and then deliver the items their customers want and now expect to receive – in a flash. As it was put in RetailDive: “Membership at Amazon means free two-day shipping and other perks, while at most flash-sales … it basically means you can access the site, whose wares may not be available in a few hours.” I believe the point here is that when membership translates to access, then the retailer better have sufficient product available – otherwise, it risks losing the interest of the customer.
Now that consumers have a little extra cash jingling around in their pockets, they are investing in better experiences, and that extends to the types of stores they shop. More consumers are opting for the diversion and uniqueness of boutiques and small businesses, according to Sarah Quinlan, senior vice president of market insights at MasterCard. In a Q&A with PYMNTS.com, she said total U.S retail sales, excluding gas, rose 5.1 percent in July compared with the same month a year ago. Sales among small businesses with $50 million or less in annual sales, however, rose 7.4 percent. A slight dig further supports this. Apparel sales rose 1.1 percent from July 2014 to July 2015, while among small businesses, sales rose more than 3 percent, she said.
Beginning this month, the French government is bowing to global economic pressure and allowing some department stores and other retailers to open on Sundays and extend hours on some evenings. In the United States, we might say, “So what?” but in France some are shouting, “Mon Dieu!” Sundays have traditionally been a day to spend with family and relax, not to spend on clothes. But President François Hollande said 12 tourist zones could stay open. Parisians can thank tourists, and the stronger U.S. dollar. In 2014, foreign visitors to Paris spent $1,385 per city resident on hotels, restaurants, luxury goods and other items, according to the New York Post. “Will Paris rival New York, the city that never sleeps, with its stores open seven days and 24 hours?” the city’s tabloid, Le Parisien, asked. The answer may depend on the strength of the euro.
Here is an example of one unexpected retail segment that is turning the strengthening economy to its advantage, thanks to the growth of the natural foods market. The USDA in 2013 reported that demand for organic products had rebounded quickly following the recession – up 11 percent from 2011 to 2012 (the most recent figure available). This improvement in spending apparently encouraged grocers to expand their natural selections, possibly as a way to stand apart from rivals.
This, however, has affected the suppliers of many processed foods. Now, as more grocery chains shift their focus to healthier but pricier fresh foods, the makers of processed foods are seeking new outlets, and dollar stores have caught their eyes. There is still a buying public for these “middle-of-the-store” goods, after all, and dollar stores often sell them at lower prices than do traditional grocers and mass merchants. And they get the sales. Dollar stores now represent an $80 billion business with tens of thousands of locations, according to the consulting firm Kantar Retail in a recent story on National Public Radio’s Marketplace. General Mills, a leader in processed foods including cereal, saw 8 percent growth in the dollar and drugstore channels in 2014.
Each of these examples reveals how resilient the retail industry can be when the players are willing to be versatile, responsive and a little open to risk. The retailers that succeed are those that understand their fundamental models will be subject to change as movements like economic health bring new challenges to the table. When players are willing to be flexible, while still playing to their original model, they will have a far higher likelihood of weathering the storm, even if it comes strangely as a result of economic recovery.
This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.