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Post-Recession Retailing

Explore the impact of the recession on shopper spending, the shifting behaviors of different generations, and strategies for retailers to adapt to the post-recession retail landscape.

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Post-Recession Retailing

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  1. Post-RecessionRetailing How to Prepare for Tomorrow’s Shoppers Today Lois Huff Sr. Vice President Retail Forward, Inc. 614-355-4011 lhuff@retailforward.com

  2. A New Retail World • How did we get here? • What is happening now? • What will happen come the recovery?

  3. Key Shopper Spending Drivers Began to Unravel in 2007 • Top Line Income • Hurt by increasing job cuts • Open To Spend • Reduced by rising fuel and food prices • Hindered by rising credit crunch • Long-Term Wealth • Reduced by housing depreciation, stagnation • Devastated by plunging stock market • Overall Confidence • Reduced by all of the above • Further inflamed by media fuel

  4. The First Shopper Tipping Point: Feb-Mar 2008 • Shaky job situation for down market • Rising food and fuel prices for all • Troublesome housing market • Many felt worse off about investments Perceptions Compared with Last Year Highlighting/bolding indicates significant differences between column percentages Source: Retail Forward ShopperScape™, February and March 2008

  5. 40% 28% Feb-08 Mar-08 The Result: Sharply Curbed Short-TermSpending Plans Plan to Spend SOMEWHAT LESS at Retail Stores During Coming Month Compared With Last Year Highlighting/bolding indicates significant differences between column percentages Source: Retail Forward ShopperScape™, February and March 2008

  6. The Second Shopper Tipping Point: Fall 2008 • Plunging stock market • Emergency Economic Stabilization Act of 2008 • Destabilized shopper sentiment • Percentage of shoppers planning to cut back on holiday spending shot up from37% to 52% post bailout

  7. The Result: Retail Enters a Holiday Abyss Quarterly Retail Sales: Key Holiday Retail Channels (percent change year-to-year) 20% 15% 10% 5% 0% -5% -10% 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 Source: U.S. Census Bureau

  8. Shoppers Are Out of Gas • All shoppers are impacting retail sales • But some are doing so more than others

  9. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Gen Y Gen X Baby Boomers Seniors Majority Have Changed Their Behavior • > 50% across all generational and income segments altered shopping behavior • Gap between down- and up-market shoppers widens with age • Middle market more aligned with down market Percentage of Segments Changing Behavior Due to Economic Downturn Down Market (< $22,500) Middle Market ($22,500 to $84,999) Up Market ($85,000+) Source: Retail Forward ShopperScape™, Aug. 2008

  10. But Retail Spending Pullback Came In Waves • Both income and lifestage are highly correlated with spending • Seniors with lower incomes curbed spending first • But seniors with high incomes were last to cut spending and change shopping behavior

  11. Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- 08 08 08 08 08 08 08 08 08 08 08 09 09 09 Gen Y: Less Impact and Less Recovery “Power” • 18 to 27 year olds • Spending patterns less driven by wealth (housing equity, stock market) • Less likely to have tempered their spending in general • Future intentions shaped by tighter credit vs. dampened desires Intention to Spend Less in Coming Month 80% 70% GenY Middle Market GenY Down Market 60% 50% 40% 30% 20% GenY Up Market 10% 0% Source: Retail Forward ShopperScape™, Feb. 2008  Mar. 2009

  12. 80% 70% GenX Middle Market GenX Down Market 60% 50% 40% 30% GenX Up Market 20% 10% 0% Feb- Mar- Apr- May- Jun- 08 Jul- 08 Aug- Sep- Oct- Nov- Dec- Jan- 09 Feb- Mar- 08 08 08 08 08 08 08 08 08 09 09 Gen X: Critical to Retail Decline and Recovery Intentions to Spend Less in Coming Month • 28 to 44 years old • Critical lifestage with big impact on retailers’ health • Highly reactive to shopper tipping points • Gen X up-market shopper key to watch for positive signs Source: Retail Forward ShopperScape™, Feb. 2008  Mar. 2009

  13. Baby Boomers: More Restrained Reactions • Age 45 to 63 • Reactive to shopper tipping points • Pronounced spike following October passage of the “bailout” • Less severe pullback post passage of economic stimulus package Intention to Spend Less in Coming Month Baby Boomers Down Market Baby Boomers Middle Market 80% 70% 60% 50% 40% 30% Baby Boomers Up Market 20% 10% 0% Feb- Mar- Apr- May- Jun- Jul- 08 Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Source: Retail Forward ShopperScape™, Feb. 2008  Mar. 2009 08 08 08 08 08 08 08 08 08 08 09 09 09

  14. Seniors: Sharp Drops, But Polarized Reactions Intentions to Spend Less in Coming Month • Age 63+ • Pronounced spikes in March, June and October 2008 and March 2009 • More polarized attitudinally based on income • Up-market seniors most likely not to change shopping behavior Seniors Down Market Seniors Middle Market 80% 70% 60% 50% 40% 30% 20% Seniors Up Market 10% 0% Feb- 08 Mar- 08 Apr- 08 May- 08 Jun- 08 Jul- 08 Aug- 08 Sep- 08 Oct- 08 Nov- 08 Dec- 08 Jan- 09 Feb- 09 Mar- 09 Source: Retail Forward ShopperScape™, Feb. 2008  Mar. 2009

  15. Linear FDM FDM Softgoods Linear Softgoods Linear Homegoods Homegoods Linear Other Other Shopping Behavior Didn’t Change Overnight Average Number of Retailers Shopped during Past 4 Weeks by Broad Channel Segments • Gradual consolidation of stores visited • Less in food/drug/mass channels than in homegoods or softgoods 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 Dec- Feb- Apr- Jun- Aug- Oct- Dec- Feb- 07 08 08 08 08 08 08 09 Source: Retail Forward ShopperScape™, Dec. 2007  Mar. 2009 07 08 08 08 08 08 08 09

  16. Store Shopping Downtrend Outpaced Online Average Number of Stores and Web Sites Shopped during Past 4 Weeks 14 Linear Average # of Stores Shopped Average # of Stores Shopped 12 10 8 Average # of Web Sites Shopped 6 4 2 Linear Average # of Web Sites Shopped 0 Dec- Feb- Apr- Jun- Aug- Oct- Dec- Feb- 07 08 08 08 08 08 08 09 Source: Retail Forward ShopperScape™, Dec. 2007  Mar. 2009

  17. Limiting Spending Across Categories • Using common tactics to limit spending • Shopping less often • Postponing purchases • Reining in impulse buying • Often switching to cash or equivalent Most Common Tactics for Limiting Spending * Only female shoppers surveyed ** Shoppers participating in indoor/outdoor projects Source: Retail Forward ShopperScape™, February, March and April 2009

  18. Seeking Deals To Avoid Trading Down • Using ads to determine where to shop and consolidating shopping at stores offering best value • Grocery shoppers combining variety of approaches – coupons, ads, multiple item buying, stockpiling • In apparel, monitoring favorite store’s clearance Most Common Deal-Seeking Tactics * Only female shoppers surveyed ** Shoppers participating in indoor/outdoor projects Source: Retail Forward ShopperScape™, February, March and April 2009

  19. But Many Are Trading Down To Save • Trading down to less expensive versions of products common • More basics than fashion in apparel • Less expensive brands • Less expensive versions in grocery • Private brand popularity in grocery and home improvement • Not so much in apparel Most Common Tactics for Trading Down *Only female shoppers surveyed **Shoppers participating in indoor/outdoor projects Source: Retail Forward ShopperScape™, February, March and April 2009

  20. Some Categories Are More Vulnerable Percentage of Shoppers Purchasing Apparel/Shoes/Accessories during Past 4 Weeks • In apparel, mom sacrifices for the kids • Footwear purchasing down Y-T-Y except for men’s shoes Highlighting indicates significant difference between column percentages Source: Retail Forward ShopperScape™, March 2008 and March 2009

  21. Some Categories Are More Vulnerable • In homegoods, home fashions down most Y-T-Y • Home improvement, CE, small appliances also down, not as steeply Percentage of Shoppers Purchasing Homegoods during Past 4 Weeks Highlighting indicates significant difference between column percentages Source: Retail Forward ShopperScape™, March 2008 and March 2009

  22. Cutting Back On Leisure… • Leisure-related categories down with books and greeting cards bearing heavy hits Percentage of Shoppers Purchasing Leisure Products during Past 4 Weeks Highlighting indicates significant difference between column percentages Source: Retail Forward ShopperScape™, March 2008 and March 2009

  23. … And On Looking Good • Personal care purchasing also down more than OTC and a little more than color cosmetics Percentage of Shoppers Purchasing HBC during Past 4 Weeks Highlighting indicates significant difference between column percentages Source: Retail Forward ShopperScape™, March 2008 and March 2009

  24. Cleanliness and Pets Are Even Suffering • Household cleaning slides • Even pets not recession proof Percentage of Shoppers Purchasing Non-grocery Products during Past 4 Weeks Highlighting indicates significant difference between column percentages Source: Retail Forward ShopperScape™, March 2008 and March 2009

  25. But Shoppers Still Have To Eat … And Want To Drink Percentage of Shoppers Purchasing Grocery Products during Past 4 Weeks • In groceries, several discretionary categories down • But salty snacks, beer, wine and liquor hold their own Highlighting indicates significant difference between column percentages Source: Retail Forward ShopperScape™, March 2008 and March 2009

  26. Food/Drug/Mass ChannelsLess Negatively Affected • Y-T-Y shopper share indices show most FDM channels about on par with last year • Dollar stores up • Home textiles and home furnishings struggling most • Apparel-related LOTs weak ShopperShare YTY Indices 120 100 80 60 40 20 0 Drug Home stores stores stores stores stores retailers retailers Supercenters Shoe retailers Supermarkets Discount stores Warehouse clubs Value department Liquor/wine stores stores/pharmacies Small-format value furnishings retailers Home textiles/home Upscale department Craft/hobby retailers Office supply retailers Consumer electronics Books/music specialty Traditional department improvement/hardware Adult apparel specialty Sporting goods retailers Source: Retail Forward ShopperScape™, March 2008 and March 2009

  27. When Will the Recovery Happen? Approach long-term ave. growth The Most Likely Scenario Rebound 2010 Forecast  Q1 ‘10 Q3 ‘08 Q4 ‘09 Q3 ‘09 Q4 ‘08 Q1 ‘09 Period of flat-to-negative growth Approach long-term ave. growth The Best Case Scenario Rebound 2009 Forecast  Q1 ‘10 Q3 ‘08 Q4 ‘09 Q3 ‘09 Q2 ‘09 Q4 ‘08 Q1 ‘09 Quicker signs of rebound The Worst Case Scenario Rebound 2011 or later Forecast  Q3 ‘08 Q1 ‘10 Q4 ‘08 Q1 ‘09 Extended period of flat-to-negative growth

  28. Recovery Driven By Different Shoppers • Older segments have most housing, equity wealth, spending potential • Led way out of past two downturns • Early 90s -- accumulating • Dot.com bust -- in prime earning years • Wealth has been wiped out and are closer to retirement • Boomers will have less to spend once able to retire • Path out more dependent on younger cohorts Median Household Wealth of Baby Boomers 2004 and 2009F $315,400 - 49% $172,400 - 45% $159,800 $94,200 45 - 54 55 - 64 2004 2009F Note: Median household wealth represents wealth of a household with a person between 45-54 and 55-64; 2009 figures are projections Source: Center for Economic and Policy Research

  29. Resulting Period of Sluggish Demand Retail Sales by Channel (percent change year-over-year, not seasonally adjusted) 10% Forecast 8% 6% Non-auto less gasoline 4% FDM 2 2% Homegoods 1 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 -2% -4% Softgoods 3 -6% Sources: Retail Forward and U.S. Department of Commerce

  30. Shoppers Will Continue to Deleverage $$$ Shifts out of Retail • Getting fiscal house in order • Debt paydown • Slower debt accumulation • Less home buying • Anticipated decline in consumer debt ratio for several years Consumer Debt Service Ratio (% disposable income) 16 15 14 13 12 2 Flat Quarters and Dropping 11 10 9 8 08F 09F 10F 11F 12F 13F 14F 15F 82q3 81q2 91q2 80q1 83q4 85q1 86q2 92q3 93q4 95q1 96q2 97q3 01q2 06q2 87q3 88q4 90q1 98q4 00q1 02q3 03q4 05q1 07q3

  31. Food Price Index (percent change year-over-year) 5.4% 4.6% 3.8% 3.8% 3.7% 3.2% 3.2% 3.1% 3.0% 2.3% 2.3% 2.3% 1.9% 1.9% 2000 2001 2002 2003 2004 2005 2006 2007 2008F 2009F 2010F 2011F 2012F 2013F But Shoppers Will Also Be Less Stressed Not Back to the Future … but Better than Today • Food inflation tapers a bit … but not to historical levels • Fuel inflation returns … but not to early 2008 levels • Wealth recovery will be underway • Housing prices • Stock market • Income Sources: U.S. Department of Commerce and TNS Retail Forward

  32. Big Ticket Will Be Traumatized What You Make Is What You Spend “WYMI-WYS” dominates … • Housing • Housing-related • “Designer” luxury • Financing-reliant

  33. Shoppers Will Recover Via The LIFO Method Extent to which Behaviors Changed this Past Year Seniors Up Market • Some shoppers less likely to change behaviors than others • Senior up-market shoppers less likely to have changed behavior, especially in groceries Highlighting indicates significant differences between column percentages Source: Retail Forward ShopperScape™ February and March 2009

  34. Shoppers Will Recover Via The LIFO Method Extent to which Behaviors Changed this Past Year • Gen X up-market shoppers slower to change but now have pulled back Gen X Up Market Highlighting indicates significant differences between column percentages Source: Retail Forward ShopperScape™ February and March 2009

  35. Gen X Up-market Segment Made Significant Cutbacks Year-to-Year Spending Changes on Home Furnishings and Casual Apparel • Exception: home furnishings up vs. other, even up-market, segments • Apparel showed sharpest declines Source: Retail Forward ShopperScape™, Quarter 1 2008 and Quarter 1 2009

  36. Gen X Up-market Segment Cutback More in HBC Than Groceries • But not as bad as apparel Year-to-Year Spending Changes on Groceries and HBC Source: Retail Forward ShopperScape™, Quarter 1 2008 and Quarter 1 2009

  37. 25% Gen X Up Market 20% 15% 10% All Shoppers 5% 0% Jul-08 Apr-08 Oct-08 Jun-08 Jan-09 Feb-09 Feb-08 Mar-08 Mar-09 Aug-08 Sep-08 Nov-08 Dec-08 May-08 Gen X Up-market Segment Key To Watch For Post-recession Spending • LIFO cohort key segment to watch emerge from recession Percentage of Shoppers Planning to Spend Much/Somewhat More Vs. Last Year Source: Retail Forward ShopperScape™, Feb. 2008  Mar. 2009

  38. Gen X Up-market Segment Behaviors That Will Stick For a While • Grocery and Food • Curbed dining out habits • Moved to more private labels • Clipped more coupons • Motivated by specials • Apparel • Large pull back on spending and shopping • Off price shift – brands at value prices • Monitor clearance and sale racks Source: Retail Forward ShopperScape™, Feb. 2008  Mar. 2009

  39. Some Lasting Changes In Overall Behaviors Will Persist For Years Due To Job Market Reasons Why Shoppers Plan to Spend Less • Top turnaround driver • Job security/HHI • Others drivers: • Fear • Mindset shifts • Stock market • Personal health • Housing market • Credit Source: Retail Forward ShopperScape™, April 2009

  40. Limits On Spending Will Be Lasting • Clothing, accessories and shoe retailers will feel effects longer • Less spending • Less frequent shopping • Less impulse purchasing • More sticking to lists • More DIY than BIFM • Less appetite forcredit card debt • Less ability to accumulate debt Extremely Likely to Retain Limiting Spending Tactics * Only female shoppers surveyed ** Shoppers participating in indoor/outdoor projects Source: Retail Forward ShopperScape™, February, March and April 2009

  41. Bargain Hunting And Pre-shopping Continues • Grocery shoppers will continue to use ads, coupons, and multiple item or stockpiling behaviors • Apparel buyers will continue to hit the clearance racks—with possible disappointment • Increased use of circulars and coupon clipping results in greater pre-shopping influence Extremely Likely to Retain Deal-Seeking Tactics * Only female shoppers surveyed ** Shoppers participating in indoor/outdoor projects Source: Retail Forward ShopperScape™, February, March and April 2009

  42. Most Will Return To Previous Store Choice Sets • Only about one in ten shoppers to continue to narrow store choices to get the best value Extremely Likely to Retain Deal-Seeking Tactics * Only female shoppers surveyed ** Shoppers participating in indoor/outdoor projects Source: Retail Forward ShopperScape™, February, March and April 2009

  43. Luxury And Gourmet Markets Will Contract • Aspirational shoppers who previously bought luxury and gourmet products pulling back • Moderate brands gain • Grocery shoppers shift to more private brands and less expensive formulations sticks for many Swarovski-encrusted toilet - $75,000 Extremely Likely to Retain Trading Down Tactics * Only female shoppers surveyed ** Shoppers participating in indoor/outdoor projects Source: Retail Forward ShopperScape™, February, March and April 2009

  44. Cutting Labor More Risky Than Cutting Inventory • Retailer cutbacks to conserve cash led to: • Cutting labor • Cutting inventory • Labor cuts more likely to affect shoppers negatively • Inventory cuts more likely to affect apparel Percentage of Shoppers Very Much/Somewhat Reducing Spending as a Result of Retailer Cutbacks Source: Retail Forward ShopperScape™, April 2009

  45. Even When Former Shoppers Return, They’ll Be Re-Wired • Some temperate spending for awhile • Some trained only to shop “on deal” • Some trading down will stick with new patterns • Some losing so much ground, shopping behaviors permanently changed • Most will return to favorite pre-recession stores • But prepare to welcome back previous -- but transformed – customers

  46. Some Retailers Will Fare Better Than Others Retailers Ranked on Customer Service and Future Shopping Intent by Past 4 Week Shoppers • Views about service only somewhat related to intention to shop more when economy improves • Top 5 most improved are FDM players, Amazon • Top 5 most likely to shop more post-recession also (different) FDM players and Amazon • Publix and Amazon in Top 5 in both categories Source: Retail Forward ShopperScape™, March and April 2009

  47. 4.7% 4.4% 4.3% 3.6% 3.3% 2.8% Discount Dept. Stores 2.2% Department Stores Super- markets Home Furnishings Stores CE/ Appliance Stores Apparel and Shoe Stores Drug Stores Building/ Hardware Stores Furniture Stores -0.1% -0.9% An Uneven Recovery at Retail • E-commerce, clubs, supercenters positioned to benefit most • Modest growth for most specialists, food/drug • Mass merchants continue to suffer Estimated Compound Annual Sales Growth Rate, 2008–2013 15.0% 7.9% E-commerce Clubs and Super- centers

  48. Some Sectors Will Fare Better Than Others Food, drug, mass channels • Least affected by recession • Supercenters and warehouse clubs fare best, lead the recovery • Discount department stores and grocery stores suffer most, recover more slowly • Necessities will remain strong • DIY will remain strong • Good value will remain a requirement • Exposure of new generation to much better PB than in the past

  49. Some Sectors Will Fare Better Than Others Homegoods channels • Ongoing stress -- slow housing market recovery, focus on big ticket/credit reliant purchases • Cash-based, lower ticket will return first, do better • Major project, big ticket suffers more, recovers more slowly • Big ticket will remain replacement or trade down due to credit constraints • Not “aspirational” or emotional/desires • Ability to DIY, not DIFM

  50. Some Sectors Will Fare Better Than Others Softgoods channels • Hardest hit retail sector, with longest recovery • Non-essentials will suffer most • “Good enough” products will do well • “New luxuries” and “investment dressing” will replace conspicuous consumption

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