Half Full — or Half Empty?

Last December, STORES predicted that economic pressures “should ease” by the second quarter of 2009, that sales of private-label merchandise would slip and that the electronic wallet would finally become a reality. Oops.

On the other hand, we correctly predicted that no one would be spared from credit woes in 2009, that retail sustainability projects would be more closely scrutinized by Wall Street and shareholders, and that the “do more with less” mantra would emerge as the leading IT strategy.

Buoyed by our better-than-average success rate, we’ve once again set ourselves to the task of figuring out what potential opportunities and pitfalls await retailers in the coming year.

As we stand at the threshold of 2010, STORES’ editors choose to see the proverbial glass as half full. We’re happy to bid adieu to 2009 — its financial stumblings, inventory woes and endless cost-cutting initiatives – and even more pleased to usher in a new beginning.

There are a few things we think you can count on in 2010: rather than claim those certainties as our own, we’ve chosen to merely document them for the record. For starters, those retailers that managed to survive the trials and tribulations of 2009 will find themselves in a less competitive environment. And with industry research forecasting increased activity on the mergers and acquisitions front due to greater availability of credit, reduced valuations and the need for weaker companies to merge, a narrowing of the playing field seems like a fait accompli.

Store expansion will continue at a snail’s pace, and experts believe there is plenty of action still to come in the form of renegotiated rents and repackaged deals with landlords.

It’s safe to say that soaring home values and cheap credit are not likely to make a comeback in 2010, but improved access to bank loans intended to help families refinance their homes and assist small businesses is a distinct possibility.

Consumers will spend again; in fact, they’ve already begun to do so, but they’re buying less than they did a few years ago. All indicators point to a continued focus on frugality, an unwavering “buy on sale” state of mind and a resolution to use more coupons.

What else can you count on? Look for online sales to continue to out-pace growth in every other channel. Expect value retailers to thrive and social media to stimulate retail innovation. And it’s hardly a reach to forecast that Amazon’s year-end revenues will near the $25 billion mark, rivaling Macy’s.

But predictions are meant to be thought-provoking, not vaguely apparent. So, culled from a mix of retail knowledge, conversations with thought leaders, endless hours of research and a generous dollop of gut feelings, we came up with some educated guesses about how we see things shaking out in 2010. As always, any retail forecast must start with ...

The Consumer
New values have taken hold among consumers. Look for conservative spending behaviors and a pragmatic outlook on savings to replace conspicuous consumption and an overt willingness to take on debt.

Shoppers are beginning to exhale, but they are by no means reverting to their old ways. Double-digit unemployment will continue to have a sobering effect, unless there is some radical shift in the next few months. Studies have shown that nearly everyone knows someone who is unemployed, and the idea of reverting to 2006 levels of spending is out of sync with the new values – regardless of whether shoppers can afford to do so or not.

• Expect consumers to cut back less than they did in 2009. Look for women to spend a little more on clothes and a little more on beauty. If the chance to recycle a hand-held electronic device presents itself, they may even upgrade to a new cell phone, iTouch, etc.

• Saving money is no longer an afterthought; it’s a regular line item on the family budget. Family matters more; so does quality.

• 2010 ushers in the “omni-channel” shopper, so dubbed by IDCRetail Insights and described as an evolution of the multi-channel consumer. How is she different? An omni-channel shopper uses all channels simultaneously and expects openness and transparency.

• Look for men to take on increasing responsibility for family shopping and errands. There’s a generational shift in play here, but changes are also wrought by unemployment.

• Shoppers’ mantra is more for less. Some will trade down; most are looking for better value. They’ll splurge on occasion, but it’s strictly a now-and-then affair.

• There’s no time to waste. If retailers want to keep customers, they need to develop innovative loyalty solutions: key tags just don’t cut it anymore. And while they’re tweaking the loyalty program, an investment in technology aimed at tracking buying behavior and determining relevant rewards is in order.

The Store
Shoppers spent less time in stores in 2009, and they’ll continue to dial back their shopping time in 2010. Retailers must compete harder on entry price items and ratchet up their offering of exclusive items and/or a differentiated product mix.

David Roth, CEO of the EMEA and Asia groups for advertising and marketing firm WPP’s The Store retail practice, recently wrote that “Retailers need to reconfigure their space or else they will be left with large stadiums designed for a sport that customers no longer want to play.” The truth can be painful; ignoring it and continuing with the same-old same-old could be fatal.

• It seems contradictory in a period of price sensitivity, but convenience stores will gain new prominence in 2010. Prices are higher than those found at the discounter up the road, but for shoppers seeking to avoid filling their carts with unexpected “bargains,” spending a few cents more on one or two items might actually be a budget-worthy trade-off.

• In a world where trends move through the bell curve at the speed of Twitter, retailers need to sharpen their ability to spot the latest-and-greatest and speed up reaction times.

• Dollar stores will be in the sweet spot in 2010; everyone could use a bargain on something at some time.

• Retailers that cater to the nation’s growing ethnic diversification will steal market share from competitors.

• Smaller footprint grocery stores will represent a commanding share of new store openings. Cognizant of the time it takes to navigate a 20,000-sq.-ft. supermarket, shoppers are trading infinite choices for an edited assortment and the good feeling that comes from staying within the budget.