A “shift to thrift” by American consumers will not go away any time soon, according to a survey by AlixPartners LLP. In every retailer category this year, Product and Price were the two most important attributes, and Service was last-a vast change from similar AlixPartners surveys in recent years.
What we are seeing here is a clear-cut ‘shift to thrift, said Matthew Katz, the leader of AlixPartners retail practice and a managing director of the firm. What is most important to consumers today is the intersection of ‘good-enough merchandise-not ‘the best, but good enough-and low prices. Consumers are saying that retailers must clearly understand this value equation or they will not part with their dollars. And they are incredibly comfortable switching to the channel and the retailer that offers real, no-frills, back-to-basics, honest-to-goodness value.
Katz noted that this new consumer mindset is driving consumers at all income levels to seek lower-cost alternatives-compounding the challenge for many retailers.
Said Fred Crawford, CEO of AlixPartners: This study has dramatic operational implications, for retailers, for their sponsors and, in fact, for businesses of all kinds. Its further indication, along with two major consumer-spending surveys AlixPartners conducted within the past year, that a ‘new normal will endure in the post-recession economy, a level of spending-and of general economic activity-much lower than in the recent past. And this looks to have far-reaching implications for manufacturers, shippers, packaging companies, infrastructure providers-in fact, all aspects of the economy will be impacted given that consumer spending accounts for about 70% of GDP.
The AlixPartners survey covered 16 retail categories, including: Apparel, Books, Club Stores, Convenience, Department, Dollar Stores, D-I-Y (do-it-yourself), Drug, Electronics, Footwear (non-athletic), Footwear (athletic), Grocery, Mass, Office Supply, Off-Price Retail and Sporting Goods. For each category, it compares the performance of the most popular stores with consumer expectation in the five major attributes that consumers universally consider when deciding what and where to buy: Price, Product, Service, Access (both location and in-store) and (overall shopping) Experience.
In every retailer category this year, Product and Price were the two most important attributes, and Service was last-a vast change from similar AlixPartners surveys in recent years, when Service was ranked near Product in overall importance.
Here are some of the highlights of the survey:
Plotting the relative strengths and weaknesses of Kohls, Target, Old Navy, Macys, JC Penney and Wal-Mart, the study shows that JC Penney in particular has performed well in exceeding consumers expectations for value, while Macys underperformance in price speaks to the trade-down activity of their customers. Among mass retailers, Target continues to deliver. Noted Katz, Targets ability to meet or surpass expectations for both Product and Price has translated to apparel leadership at Mass, but we expect to see Wal-Marts product improving in the future and Targets lead will be challenged.
TJ Maxx, Marshalls, Burlington Coat, Ross and Steinmart all performed well, especially in the second half of the year after the drastic markdowns many in the full-price channel took to clear inventory. Steinmart, which was above the segment average in four of the five attributes, and met consumer expectations in Product, saw its stock price increase by a dramatic 840%.
The two stores that were best at delivering value, Kohls and JC Penney, were rewarded by Wall Street as well as by shoppers. Kohls stock price was up nearly 50% over the past year, while JC Penneys was up 40%. Katz observed, Kohls has clearly mastered the idea that to sustain success you must really excel in one area, in this case Price, be above average in another (Product) and then meet segment expectations in the others.
About the Study
The AlixPartners 2010 Consumer Sentiment Index(SM) was conducted in the fourth quarter of 2009, with 7,709 consumers in the U.S., representing the key demographics of gender, age, location (urban, suburban, rural), region, education, marital status, number of children, employment status, ethnicity and income. Participants were asked to evaluate the importance of 63 elements related to store choice, product selection and the overall shopping experience to determine what matters most to them when interacting with retailers. These elements were organized into the five universal attributes that consumers consider when deciding what and where to buy: Price, Product, Service, Access and Experience. Respondents also ranked individual retailers on how they are performing on each of the five major attributes, from outstanding (5) to poor (1). The margin of error for the survey is +/- 1.1%.