The Lure Of Shopping

American Demographics, July 1, 2002

A bright spot in the retail marketplace has been the explosive growth of large national specialty chains, including Bed Bath & Beyond, Linens 'n' Things, Pier 1, Pottery Barn, Williams-Sonoma, Restoration Hardware, Home Depot, Lowe's and so forth. These national specialty retailers are literally "eating the lunch" of small independent specialty retailers that focus on gift and home products. Yet the national specialty chains have an Achilles' heel that may soon start to trip them up. Many of these companies have become retail "darlings" by posting consistent annual growth rates in the range of 7 percent to 15 percent. However, that growth has come from opening new stores rather than increases in existing store sales. The trouble is that with only about 225 U.S. cities boasting a total population of 100,000 or more, the new markets where the national specialty retailers can open is shrinking. Many of the chains have between 200 and 300 individual stores, and behemoth Pier 1 has just topped 900 outlets. Inevitably, revenue growth for these chains will return to earth as their "frontier" markets evaporate. Their new store openings will be slated for existing markets, where they will start to cannibalize their own stores' sales.

The coming retail shakeout will have an impact on all retailers, large and small. Clearly, some big-name department stores will be unable to stay the course as the department store sector continues to distance itself from the shopping needs of consumers. More small independent retailers, those shops that line small-town America's main streets, will fold as Wal-Mart, Kmart or Target open up on the town's bypass. The national specialty chains will have to work harder for every percentage point of revenue growth as their building expansion programs slow. They may well start to close some of the unproductive stores in favor of larger stores in growing urban or suburban centers. Many older malls will fold as consumers start to patronize the new, unenclosed, lifestyle malls that are sprouting up throughout the country. They are designed to mimic small-town ambience while showcasing national, upscale and specialty chain stores.

HOW TO SURVIVE THE RETAIL SHAKEOUT

Understanding why people buy applies equally to manufacturers and retail businesses in anticipating consumer behavior now and in the future. Retailers need to explore with their consumers why people shop in their stores. What features, products, attributes, benefits, needs and consumer desires does the store meet? In what areas does it fail to satisfy? Retailers need to dig deeper than simply "customer service" and "quality." Too many retailers imagine their point of difference is "customer service" or "quality" products, but if you sit in a room for five minutes with consumers, you discover that these terms are meaningless. Retailers have to understand the heart, mind and emotions of their customers. They need to figure out what experiences consumers expect and desire to have while shopping in the store and then develop strategies to give them more of those experiences.