How to Maximize Sales Potential in a Changed Economy

The holiday season is a time of celebration for many retailers. But once it’s over, keeping sales moving in the right direction can be a challenge. To help give retailers some strategies to combat ongoing challenges, such as consumer budgeting and digital competition from non-market leaders, Deloitte held a Webcast yesterday (December 2), called “Customer Relevancy: Achieving High Performance Beyond the Holiday Season.” After the Webcast, Nielsen Business Media’s Stacy Straczynski caught up with Mary Delk, director for Deloitte’s retail practice, who discussed current retail trends and what actions retailers need to take to stay competitive. Here’s what she had to say:

Nielsen Business Media: How have shifts in the consumer mindset shaped spending behavior?
Mary Delk:
[In the Deloitte 2009 Holiday Study] there were a number of questions that had some sort of link to discounts or the usage of coupons or “I’m going to buy my gifts on sale” and when you looked across all those questions and you linked it back to the demographics of the survey, the people who were looking to save money or buy on sale or get deep discounts, it didn’t center on any one group. It cut across all age and income spectrums…

NBM: Will retailers be hard-pressed to meet these new demands?
A lot of [retailers] planned for it. I know of a number of retailers who did a lot of direct importing then went back and negotiated with manufactures. They figured out how to take some cost out of what they were doing. I know the supplier community has had to sit down with a number of retailers and figure out how they can provide more exciting promotions and not get ‘out of our hide’ in terms of profit.

Last year, retailers were so reactive. They had too much inventory and had all these broad cuts across categories. When that happens, you sell the best stuff and that not so good stuff sits longer and longer and requires deeper and deeper markdowns. I think what they have to do now is they have to be more surgical and take those deep discounts on the items [not performing well] and be a little less on the items showing good demand.

NBM: How do you feel the changes in the economy due to the recession have affected the retailer/consumer relationship today?
I think it’s really impacted loyalty. Consumers are more concerned about their own pocketbooks than they are about necessarily staying put with a retailer. And not all of them—about 26 percent of them said that they were no longer loyal to a retailer they had been loyal to in the past as they look for the lowest price.

I think what it’s doing on the retail side, at least what I hope its doing, is making retailers realize that they have to be more in tune to what customers want, how they want to be treated and what they will respond to and essentially value their business more. I think one of the things you might see next year is people re-exploring and revamping their loyalty program somewhat.

NBM: Is there any way that retailers can go about regaining that lost loyalty, or do you think it’s too late?
There’s always going to be a certain number of customers that are going to go for the lowest price—that’s always going to happen. One of the things I didn’t talk about in the Webcast today was that in our survey 44 percent of people said they remained loyal to the stores they like, but they are making fewer trips and they’re buying less. Don’t lose those people. Figure out how you might be able to get them to spend more. The other thing that people have to keep in mind is that generally the “best” customer, the highest spenders and most frequent shoppers, is worth about 20 times that of an average or below average customer. That’s a huge number. That group of “best” customers is probably pretty loyal to you.

NBM: How can retailers best go about collecting customer data and discovering customer voice? What strategies have proven effective in getting the most accurate information?
Several. First of all, if retailers have a proprietary charge card, even if it’s not a huge part of their transactions, it can be a great place to start. That’s going to capture the customer’s value as well as the customer’s behavior over time. And I stress that . . . because you have to look at shopper behavior over multiple trips. The second one is loyalty or reward programs. If you think about the genesis of those in areas like grocery or places where there are traditionally a lot of cash transactions, these programs become a value for gathering customer data. Certainly, in addition you’ve got people now who are looking to integrate their online data back into their store data, if they’re multi-channel. Online data captures even more behavior. You can see where customers shopped and then abandoned their cart, which you can’t necessarily see in the store data. The last thing I would say that people really need to consider is participating in some sort of social media site. That’s another way to get information that remains fairly untapped at this point.

NBM: What are some of the risks retailers face by trying to collect customer data and increase their relevancy?
I’ll give you the number one. You may have heard me use the word “actionable” several times in the Webcast. One of the risks is that [retailers] have people in outside firms come in and spend a lot of time analyzing and coming up with insights, but the insights are more like customer “fun facts.” They’re interesting but they’re not clearly aimed at “What do I do with this information now that I have it?” The risk is working only to uncover insights. The remedy to that is to kind of work right to left, that is, what do you think might need to change? Challenge yourself and say “Let me make sure that if I’m spending my time looking for certain kind of insights that they’re going to be directed at merchandising, marketing or pricing.”

NBM: What are the key areas retailers should be focusing on as we move into 2010?
The initiative they need to be focused on now is refining inventory deployment. Are they getting the assortments right by location? Are they tailoring the stores to local needs? That does two things, it spurs sale—as customers in their own locations can find what they want—and it reduces markdowns. In an apparel business for example, size optimization is a big initiative. And then I think what’s definitely the most important is what we talked about today: You’re not going to win over the long haul if all you do is hunker down and kind of wait for when you think it might get better, and I think you’re already seeing some of the leaders in the industry out there. Retailers have to get aggressive about growth. And if that’s the end game, the means to that end is knowing and exploiting your intelligence about your customer.