“The bottom line is that there are just as many uncertainties weighing on the outlook for growth as … [+] there were a year ago, even if some of the forces at play have changed,” reported NRF economist Jack Kleinhenz. (Photo by Win McNamee/Getty Images)
It’s been almost two years to the day since Covid threw retailers and shoppers for a loop. Forced to adapt, both retailers and the shoppers responded remarkably well and as the threat of the pandemic diminished, retail’s 2021 recovery was remarkable as well.
Retail sales advanced 14% and it seemed things were returning to normal as the new year began. The National Retail Federation predicted retail would continue strong in 2022, growing between 6% to 8%. But new retail threats are emerging faster than forecasters can program into their models.
“The bottom line is that there are just as many uncertainties weighing on the outlook for growth as there were a year ago, even if some of the forces at play have changed,” reported NRF economist Jack Kleinhenz in an April 1 statement.
“It is likely that there will be some resetting of the U.S. and world economies and that both businesses and consumers will be affected, but it is too soon to tell by how much or for how long,” he continued.
While the NRF and others look to broader macroeconomic factors for guidance, retailers need to look closer to home: how shoppers are adapting to the new challenges they face, most especially with across the board inflation at a 40-year high – now at 8.5% year-over-year.
Inflation will as profoundly affect consumer behavior this year as Covid did at its height, but unlike the pandemic, it is more insidious and will gain momentum over time.
Here are ways shoppers’ behavior is adapting that will drag down retailers’ performance this year, call them retail’s Key Performance Indicators (KPIs) but aligned to consumer behavior, not internal performance metrics like sales per square foot or inventory turns.
Fewer shopping trips
Brick-and-mortar retailers can expect to see reduced foot traffic in the months ahead. A new Consumer Sentiment survey, among 1,600 adult consumers conducted by Alvarez and Marsal’s consumer and retail group (CRG), found that 59% said they were mostly or only shopping when there was something they really needed to buy.
This is largely a result of higher gas prices, which have risen nearly 50% in the last year, but it also is a budget-friendly strategy for shoppers as it gives them less exposure to temptation.
“Our survey shows that consumers are not much more confident than they were in the Fall last year,” said Alvarez and Marsal’s CRG head Jonathan Sharp. “They continue to be focused on basic needs and less frequent shopping trips, and their biggest concern is inflation.”
Overall 54% of respondents are shopping less frequently, as compared with only 22% shopping more often and these are largely the higher-income consumers. Shoppers are also bundling more into each shopping trip.
Consumer pessimism is on the rise and that is never a good sign for retail. About half expect things to get worse or stay the same over the next six months and more than half expect to have less or the same amount of money to spend over that time.
Necessities take precedence
Back in 2020, the government classified retail into essential and non-essential categories. Now in 2022, shoppers are drawing the line.
Essential grocery and personal care needs will bring them out to shop, but going shopping to make discretionary purchases will have less appeal.
Calculating different categories’ net score based on the share of consumers who will spend more versus less, the CRG survey found that 13 out of 18 categories are going in the negative direction.
The biggest losers include alcohol, jewelry, fashion accessories, prepared food and fragrances/cosmetics. Other categories with a negative net score are beverages, consumer electronics, sports/outdoor, apparel, packaged grocery, footwear, pet supply and entertainment/books.
The primary barrier to spending, according to 49% of those surveyed, is “Products/services I want have become too expensive.” This is most especially impacting the middle-income group ($50k-$74.9k), where 57% feel their means don’t match their desires.
Overall about one-third of consumers surveyed expect to spend more on basic needs and the same percentage (34%) expect to reduce spending on “indulgences” while 27% will cut gift spending.
Less time spent in harm’s way
Besides foot traffic in the store, another critical retail KPI is the length of time shoppers spend in the store, also called dwell time. As dwell time increases so does retail spending, but a new study out by Placer.ai suggests that dwell time is going in the wrong direction.
It’s a trend particularly notable in grocery where average dwell times have dropped consistently over the last three quarters compared with 2020. And it is also a trend Placer.ai is seeing in superstore shopping visits.
For example, the average amount of time shoppers spent in a Target
store dropped from 34 minutes in the first quarter 2019 to 31 minutes in fourth-quarter 2021, a season when one would expect shoppers to spend more not less time in the store.
On the positive side, this trend may be a function of improved checkout efficiency, most notably the expansion of self-checkout options. but it also may be more worrisome. Less time spent in the store browsing means less money in retailers’ tills.
“Time is money,” says Ethan Chernofsky, vice president of marketing at Placer.ai. “There’s going to be a shift towards greater levels of efficiency where shoppers will go to places where they can do more in a single visit. And they are also going to emphasize proximity to save gas.” He sees traditional grocery and value-oriented big boxes well positioned for this shift.
Service still sells
As retailers struggle against reduced footfall, fewer discretionary purchases, and shorter dwell times, they have one thing in their arsenal to combat these negative trends: amp up the service side of their business.
The more retail personnel interact with customers, the more likely they are to make a sale. So moving personnel from behind the checkout counter and onto the sales floor has a positive impact on sales. Trader Joe’s knows this as its staffers routinely restock shelves throughout the day not just to fill the holes but to give them more opportunity to chat it up with shoppers.
Putting more retail employees on the sales floor will also have a positive impact on employee motivation and engagement. With retail positions already hard to fill, giving them more opportunities to interact with customers, rather than standing hours behind a cash register, is its own reward.
Placer.ai studied two retailers with different store models, one their traditional big-box store – Bloomingdales and Dick’s Sporting Goods – and the other a smaller, experientially focused one – Bloomie’s in Fairfax, VA and Dick’s Public Lands in Cranberry, PA.
For both retailers, the average amount of time customers spent in the experiential store model was significantly greater than in the traditional store. For example, the median length of stay in Bloomie’s was 47 minutes versus 29 minutes at Bloomingdale’s nationwide in February.
When it comes to more experientially-focused retailers, “A day out shopping becomes people’s day out,” says Chernofsky, adding that the trends he is seeing may signal new hope for malls. A single trip to the mall can satisfy more customer needs, not just to shop but to engage in activities that are more fun than sitting endless hours watching streaming services.
“Mall owners are embracing more flexibility, offering shorter leases to keep the in-line tenant mix fluid and expanding into more experiences to offer people more things to do so they’ll spend more time there and want to come back for more,” he adds.
In closing, Chernofsky says retail over the last two years has come through a crazy time and regrettably that hasn’t ended.
“It feels like there’s a new challenge each day and retail continues to be thrown askew,” he shares. “A lot of shoppers are going to be forced to buy few items with the same amount of money. They are going to make different decisions about where to shop, and visit fewer places. This is going to add pressure on retailers to make every shopper visit succeed.
“If there’s anything we learned over the last two years, it is the importance of flexibility at retail. Shoppers are being forced to do weird math equations every time they leave the house.”
The good news is, unlike the pandemic, retailers have experienced inflationary times before and know what to expect. But the bad news is it never ends well.