The Secret Sauce to Jumpstart Retail Sales
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\"SECRET_SAUCE\"The Census Department has started to release data from its five-year Economic Census that does a deep dive into all aspects of the US economy, including 12 sectors of retail. What’s important about the latest Economic Census is that it gives us the ability to study and learn from the pre- (2007) and post-recession (2012) retail market. While more data will be rolling out between now and 2016, here is the real story in the retail data.

Retail Hasn’t Begun to Recover From the Great Recession

Retail remains stuck in recession mode. In the 10-year period leading up to the Great Recession, retail was posting a compound annual growth rate of 4.76%; since then, retail has limped along with CAGR of 1.54% for the five-year period from 2007-2012.

Retail did a little better from 2012–2013, up some 4.2% based upon comparables from the Monthly Retail Trade Survey, but 2014 has been a complete drag, with September’s YTD report showing the GAFO (General merchandise, Apparel, Furniture & Other) retail sector up a mere 1.4%. For retailers that fill the nation’s malls, shopping centers and main streets, the GAFO number is the one to watch. From 2007-2012, the GAFO stores posted only 5.4% growth, well below retail as a whole, and from 2012-2013, they inched up only 1.5%.

Some sectors of retail benefited from the Great Recession, notably non-store retailers (up 31.4% from 2007-2012); and retailers that sell the stuff that people really need, like food and beverage stores (15.3%); health & personal care (16.3%); and gas stations (23.1%). Most every other category of retailer that sells all the other stuff that people don’t really need (i.e. discretionary purchases) continue to languish.

To Sell Discretionary Goods, Go For the Customers With Discretion

If your business is selling things people don’t really need, then you need to look at customers who have come out of the recession with more, rather than less money – the affluent. The affluent are those whose household income falls within the top 20%; today that starts at about $100,000. And good news: affluent households are faster growing overall, and those at the very top, the ultra-affluents with incomes $250,000 and above, are growing fastest of all.

From 2010 to 2013, the total number of US households grew only 2.5%, but the ultra-affluents with the highest income rose 10 times faster, up 32.6%. And those with incomes $100K-$249.9K, the HENRYs (High Earners Not Rich Yet) increased a healthy 11%.

So for retailers that want to break out of the Great Recession and generate real growth, the customer demographics are clear: target the affluent top 20% of households.

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Attract the Affluent with New Shopping Experiences; Simply Shopping Doesn’t Deliver Experience

For mall, shopping center and main street (i.e. GAFO) retailers, the sweet spot in the affluent consumer sector is the HENRYs. With incomes $100,000–$249,999, they live better than 78% of US households, but consider themselves decidedly middle class. While their higher levels of income allow for the occasional luxury indulgence, they don’t make luxury or the high life a regular part of their lifestyle, as many ultra-affluents might. The HENRYs have emerged from the recession as the new American middle class, while the old American middle class has slipped down the ladder.

As we went into the fourth quarter of 2014, the affluents’ consumer confidence as measured by Unity’s LCI (Luxury Consumption Index) was only six points shy of its Great Recession low from 4Q08-1Q09. Financially they are doing fine, but they are hanging onto their cash and are in an austerity mood, which means they are shopping less often and spending less money when they do.

The key to getting the affluent to shop and to buy in the current economy is for retailers to give shoppers a reason to come to the store. Transforming shopping from a chore into a pleasure is the key. That means making shopping more fun.

Here are a few ways to entice more affluents into your shopping experience:

Tell Shoppers Interesting Stories

Stories sell stuff. Stories are the icing on the cake, the shiny gift wrap around the present, what captures the individual’s attention, gets them interested, and, encourages them to buy. Founded in 1946, Ten Thousand Villages is a specialty retailer headquartered in Ephrata, Pennsylvania, with nearly 400 boutiques and other outlets sprinkled around the country in shopping districts that draw the affluent. It is a company that has a unique and special story to tell about its founding, mission and each one of its products that resonate with the affluent.

Long before TOMS Shoes, product (RED), or the FEED Project, Ten Thousand Villages has been making the world a better place by importing handcrafted artisan goods from Third World countries, and offering the craftspeople a fair price that enables a living wage to “help pay for food, education, healthcare and housing for artisans who would otherwise be unemployed or underemployed,” as its Ten Thousand Villages declares. Every one of the thousands of products Ten Thousand Villages sells comes with a story about where it comes from and the people who made it. It’s a great destination for unique and special gifts, things you simply can’t find anywhere else, and it makes the gift giver feel good giving them. And did I mention the products are really cool?

Engage Them, Get Them To Participate With You

Engaging customers, getting them to touch, feel, smell, seek and search with real interest and curiosity, is a way to get people to buy and make the shopping trip so memorable they are likely to seek out that experience again. Kate Spade Saturday is a new retailing concept that is using in-store technology to engage its primarily Millennial-aged target customers in a high-tech, high-touch way that is novel and cool, yet comfortable and intuitive – at least for this demographic.

The seven US Kate Spade Saturday stores (and about a dozen more in Japan and Singapore) have replaced printed signs and product tags with iPads that allow the shopper to access a central database of content that is streamed in real-time. The shopper can dig deeper into the online content to see interviews with product designers and get product recommendations and combinations in order to create complete looks. So the Pads located throughout the store encourage engagement and deliver stories that entertain the customer.

Make It Snappy To Attract Shoppers’ Very Limited Attention

Recent signs are that Target was getting its mojo back, just in time for the holiday shopping season. It did that by returning to its success in fast retailing. Fast retailing is all about grabbing the customers’ attention and getting them to act fast. Limited products offered in a limited time frame is just the right speed for today’s multitasking customers with attention spans measured in nanoseconds.

In a bold move, Target teamed up with New York Story, a novel retail store, to showcase its line of exclusive gift items for this season only.It’s a pop-up shop for Target on steroids. It includes a selection of candles, blankets and mugs from TOMS for Target; Mossimo scarf shirt and hat; stylish home goods from Target’s Nate Berkus line; and an product line of made in USA 100% wool throws, scarves and accessories from Faribault Woolen Mills (with a heritage traced back to 1865).

In conclusion, retailing today hasn’t gotten out of its Great Recession woes. In order to move forward, retailers need to inspire the affluent shopper who has rebounded quite nicely but remains caught in a depressed, austere mood when it comes to shopping. To draw the affluent to your retail destination and get them to shop, you need a secret sauce that gives them what they really are craving: Not more stuff, but an interesting, engaging shopping experience that can’t be delayed or put off. Retailers like Ten Thousand Villages, Kate Spade Saturday, Story and the reinvented Target are doing just that.

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