Top Retail Trends 2010

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Resetting consumer behavior As expected, the global recession changed the behavior of consumers. They became more value conscious, more attracted to private labels, less likely to purchase large discretionary items and less likely to eat outside the home. Yet the duration and depth of the recent downturn raises the possibility that these changes in consumer behavior will be sustained even after recovery takes place. This would apply principally to those markets in which consumer spending had been excessive during the pre-recession era and where spending was fueled by debt. Such markets include the United States, U.K. and Spain, to name the most significant.

If this pattern holds, it will have important implications for retailers operating in large developed markets. First, they will have to offer consumers a favorable value proposition; this will be especially critical for retailers not in the discount business. A good value proposition will entail being clearly differentiated from competitors so that consumers sense a unique offering – perhaps through exclusive brands – and become less likely to compare prices. In addition, smart retailers will focus on brand management in order to convey their value proposition. They will also focus on improvements in customer experience as a differentiating factor.

Second, retailers may find it necessary to shift their resources toward the development of discount concepts: Some multi-brand retailers are already doing this. The problem, of course, is that discount formats can cannibalize higher-priced formats. Thus, this strategy could prove to be a zero-sum game.

Finally, challenging conditions in markets like the United States and U.K. may compel retailers to invest in newer markets. Thus, the value orientation of rich country consumers could have the effect of accelerating retail globalization.

Luxury reset The luxury market took a big hit from the economic recession. As the global economy recovers, the luxury market will, too, but the end result will be quite different from the recent path.

Basically, there are two luxury markets. At the very high end. this market will do well: After all, even if a household experiences a decline in wealth from $100 million to $50 million, there is still plenty of money remaining to pay for an expensive handbag. Second, there is the aspirational luxury market. This involves households with sufficient incomes and wealth to purchase luxury items, but where such purchases have a noticeable impact on wealth. For these consumers, the recent recession led to a severe drop in perceived wealth and, therefore, willingness to engage in luxury spending. As the economy recovers, wealth will still be suppressed – especially housing wealth. Thus, the propensity of such consumers to purchase luxury items will be reduced for some time to come.

For luxury retailers, this will be a tough environment. Appealing to the aspirational consumer will require a greater focus on the issue of value, yet such an appeal could offend the sensibilities of high-end luxury shoppers. Thus, there may be a need for greater market segmentation on the part of luxury retailers and suppliers.

In addition, luxury sellers will shift their focus to the needs of aspirational shoppers in emerging markets like China. In such markets, the newly affluent are especially brand conscious and attracted to luxury brands. Such shoppers might be easier to attract than similar households in developed markets.