Do you agree with the premise that the media have contributed to the economy’s downturn by “terrorizing” consumers? If so, what do you think it will take to get beyond the negativity? How can marketers and retailers help turn the tide?
There is a mismatch between Americans’ assessment of their own economic, financial and social situations (good, with good prospects), and that of the country or economy in general (bad, and likely to get worse). And as we have been pointing out during all of this time, both cannot be true for a majority of people. But has the mismatch between perception and reality ever been greater than today?[According to the latest Harris Poll, 94% of Americans are satisfied with their lives (56% very satisfied), and 62% expect their personal situation to improve in the next 5 years. Yet 68% believe the nation is “on the wrong track.”]One wonders about the accuracy of polls that show some significant percentage of Americans believing that the economy is in recession: economic growth in the third quarter was 4.9% (combined second and third quarters were up 8.7% on an annualized basis); or that the next generation will experience a declining standard of living (two-thirds of Americans have incomes higher than their own parents, according to the Economic Mobility Project). How do such misperceptions persist in the face of evidence to the contrary? Our long-time readers know at least three explanations:
The good news is that the bad news is wrong; the bad news is that the good news often gets overlooked.The case for no recession in 2008:
- We are certainly not in recession now; as stated above, the increase in real GDP in the third quarter was revised upward to 4.9% by the government’s Bureau of Economic Analysis, which cited exports, personal consumption expenditures, private inventory investment, equipment and software, federal government spending, nonresidential structures and state and local government spending as positive contributing factors. At nearly 5%, third quarter growth was the best in 4 years and second highest in 7 years.
- Consumers are not “tapped out.” Employment (and employment opportunities) and household income are still at high levels. Chain-store sales are up 2.5% from a year ago; “Black Friday” and “Cyber Monday” sales were both up substantially from a year ago, setting new records. Housing values have declined marginally, but the “negative wealth effect” on consumer spending is just not that pronounced, if it exists at all.
- Sub-prime debt is not a widespread or systemic problem; it comprises only about 1.4% of global equity markets and affects only a small percentage of domestic borrowers. Furthermore, the Fed has committed to “act as needed” to shore up the economy; to stay “flexible and pragmatic” in dealing with the housing situation and credit crunch; and to not let fear of “moral hazard” deter policymakers from doing what is necessary.
- The price of oil was unsustainable at $100; it is now dropping and will continue to do so through 2008, bottoming out as low as $50 or $60. According to Fadel Gheit of Oppenheimer & Co., there is no oil shortage. Global inventories are over 4 billion barrels, the equivalent of all the oil produced in the Middle East for six months. Buyers are having no trouble finding sellers. The fear premium is totally exaggerated, not justified by logic or market fundamentals.
- The Federal Reserve predicts low inflation and continued economic growth in 2008; it will not raise, and might lower, interest rates.
- Taxes will not be raised, and may be cut (it’s an election year!).
Of course recessions have not been outlawed; we seem to get a short, shallow one every ten years to correct the unavoidable misallocations of economic and financial resources. But due to the amazing resiliency and productivity of the modern American economy; its abundance of entrepreneurs, innovators, inventors, risk-takers and creators; its public and private equity markets; its rule of law–in other words, capitalism–we will always return to the path of growth. The threats of disruption to this process of “creative destruction” are high taxes, overregulation, instability and protectionism.
Filed Under Ask Dr. Roger
How are the mass affluent different from mainstream consumers? What marketing and merchandising do consumers with above average spending habits respond to best?
When you include the affluent market with the “near-affluent” and then add in the “affluent-minded,” you’re talking about nearly half the population! (well, at least 40% anyway). The point is that the expectation of quality and luxury has now become a mass phenomenon.How to reach and sell and establish loyalty among the new affluent market? I would say most of all, individualization, or in other words, mass customization. The processes and technologies that make this possible are more available and affordable than ever. It is up to retailers and providers of goods and services to equip themselves to treat every one of their customers as an individual. This will increase number and size of sales, visits, loyalty, referrals, income and profits. It is the way of the future.
Filed Under Consumer Behavior, Uncategorized
Dr. Roger in the news
Children’s line to start online
By Kim Leonard
TRIBUNE-REVIEW
Friday, January 18, 2008
American Eagle Outfitters Inc. is starting a children’s clothing line to be called “77kids by american eagle” — and it will be the South Side-based company’s first brand to debut solely online.
The online marketplace allows the retailer to communicate with consumers about the merchandise long before the first stores open, Strand said, and response to the brand will help to shape what goes into the stores.
“Smart,” retail expert and business futurist Roger Selbert said yesterday when told of the online-only concept. “That’s where people go first to shop these days, before they go to stores.”
The move should work especially well with parents of youngsters who will wear 77kids, said Selbert, of Santa Monica, Calif. Many people now are adept at searching and comparison shopping online, he said, and “Moms with young kids who don’t have much time still find time to go online, probably every day. And they still will buy in a store, too.”
American Eagle executives who presented at a Cowan and Co. conference this week in New York City noted that AEO Direct, the company’s online business,has passed $200 million in annual sales and could reach $500 million in two years.
Sales margins are above those at stores, they said, and the “multi-channel” customer who shops on the Web and at AE stores in retail centers spends three times more than single-channel consumers.
American Eagle often references its 1977 founding date in its clothing styles. Its “AE” clothing and “aerie” intimates and fitness wear brands are geared for 15- to 25-year-olds, while the company’s Martin + Osa line is designed for older consumers.
If anyone can succeed here, it probably is American Eagle,” said LouAnn DiCosmo, retail specialist at The Motley Fool, though she questioned the timing of the launch given the retailing climate of late.
With consumer spending slowing across the board, it is tough for any retailer to branch out,” she said, and the company “is doing well with aerie, not so great with Martin + Osa.” The online debut will avoid a big, initial capital outlay, but potential investors may “want to watch and see how this plays out.”
American Eagle’s stock closed yesterday at $19.10, up 33 cents.
Kim Leonard can be reached at kleonard@tribweb.com or 412-380-5606.
Filed Under Upcoming Appearances
Do you believe there is a direct correlation between employee satisfaction and company performance? Have retailers learned to value intangibles such as employee satisfaction in achieving company performance goals or does the emphasis remain solely on traditional accounting measures?
The focus of retail industry employment is migrating from quantity to quality. Total retail employment is shrinking because of cost-cutting, consolidation and technology advances, but industry employment is growing in higher-skilled occupations, especially those involving technical, logistical and managerial skills.
Stores still have to scramble to find qualified employees who meet their needs, and still need to make competitive offers to get the people they want. The unemployment rate for people 25 years of age and older with at least a bachelor’s degree is just l.9%; that spells trouble for retailers.
As for employee satisfaction, consider Best Buy’s Results-Only Work Environment (ROWE): employees are allowed to decide how, when and where they get their jobs done. The only yardstick for evaluating employees is whether they meet goals for productivity. ROWE has had a significant impact: productivity jumped by 35%. Are profitability and stock price tied directly to intangibles? Of course they are.
Filed Under Trends in Employment
How widespread do you believe the skepticism over reviews on websites and posts about companies and products in online forums has become? Do you have any recommendations for e-tailers?
Consumer reviews will only grow in importance as more and more people shop and pre-shop on the Web. There is far less skepticism of consumer-generated content than of advertising, marketing or PR. Any serious abuse by providers will become evident. My message to retailers: Join the conversation.
Filed Under Communication Strategies
How should advertisers be marketing to baby boomers as they reach old age? What approaches should remain the same or be different from their approaches to past older generations? What missteps do you see advertisers making?
Advertisers are finally realizing that seniors spend money, and that seniors are willing to try new things and products. But now that boomers are becoming seniors, it will become increasingly more difficult to generalize about the senior market. That means producers of goods and services (and retailers) must either market to an ever-broader array of market segments and niches, or attempt mass customization (individualization).
There are many success stories (and failures) in these attempts already. I have analyzed several; too many to discuss here. My general conclusion, as unsatisfactory as it may be, is that “it depends.” It depends on product, market, strategy, reach, communication, etc. But assumptions must be discarded, and I guess that’s the point of this article.
Filed Under Lifestyle & Culture
How much influence do you think social networking sites have on purchases currently? In what ways do you see social networking sites influencing consumer purchasing decisions? How might that change in the future as these sites mature and gain credibility?
I quite agree we are only at the base of a long, steep growth curve. It certainly makes sense to me, though, that as with Amazon, consumer reviews on particular and specific web sites will be more influential than social networking sites. For retailers, that means creating a online community among your customers, and giving them space on your web site for feedback and interaction, both with store personnel and with each other.
Filed Under Consumer Behavior
Do you think the retail industry is finally realizing the benefits of merged-retail platforms?
I spoke with Evan about this article on Sunday (or should I say, commiserated with him). What it is going to take, we agreed, are incentives and disincentives, that is to say, basing rewards of both executives and sales staff on their successful adoption and implementation of merged-retail platforms and strategies.
There is nothing wrong with an emphasis on bricks over clicks; retail is still mostly people buying stuff in physical stores. My whole thrust with my retail clients and audiences (and my readers at IntegratedRetailing.com) is to show how merged channel strategies increase traffic, sales, visits, spending and loyalty IN STORES.
A great web site does not compete with your store; it complements and extends consumers’ in-store experience. It’s a resource of information, comparison shopping, and consumer reviews and rankings. Remember: even after years of 25% annual revenue growth, e-commerce sales comprise only about 3% of total retail sales, and pure-play online merchants convert an average of only 2-3% of their site visitors into buyers.
Yet 87% of consumers shop online before buying in stores, and 67% state a preference to make purchases in physical stores.
Therefore, the future is clear: it belongs to integrated, merged-channel retailers, those that use their web sites to reach shoppers, educate them, serve them, earn their loyalty, and drive traffic to their stores.
Filed Under Merging Operations
Do you see much difference between how Target and Wal-Mart go about their business online? Which marketing approaches or features do you think offer the greatest opportunity for the respective websites?
Both are coordinating stores and web sites–that’s the main thing–finding what works and what doesn’t. It’s a big step away from “silos”–separate operations, merchandise. As for pricing, that is so fluid now I think even consumers understand (but they will expect one channel to match the other when confronted–I mean, requested).
The quoted executive is right: we are still early in the game; there is much to learn through experimentation.
Filed Under Business Strategies
Are there opportunities to create happy customers returning products? Do you see the popularity of gift cards beginning to wane?
It might seem counterintuitive or counterproductive to become known as “a great place to return stuff,” but it is actually a great opportunity for competitive differentiation: more than half of all consumers take that into consideration when buying! And of course it builds into all the important stuff: customer service, upselling and cross-selling, loyalty. The most important factor from my perspective, of course, is THE ABILITY TO RETURN IN ANY CHANNEL, even if the item was bought in a different channel. This WILL lead to all of the above benefits.
As for gift cards, yes, they are huge and will continue to grow for the very reason some mentioned above: increasingly, what people want and are going to want more of is LESS. What a great opportunity for retailers: a large and growing share of the value of gift cards is never redeemed. That’s money that flows directly to the bottom line.
Filed Under Business Strategies