Post recession, is there a “new normal” for retailing?

by Nigel Lewis on 2010-06-30

With New Zealand coming out of recession, all eyes are on retail sales data and on other indicators of consumer activity. Not surprisingly, the media swooped on news of record EFTPOS transactions in the retail sector on 24 December – more than 100 transactions each second through the day!
 
The Statistics Department has since come out with figures showing a 5.7 per cent increase in the number of purchases charged to credit and debit cards during December compared with the same month in 2008 (when we were definitely in recession). There are similar reports of a surge in consumer spending over Christmas in the United States and Britain – all encouraging signs of economic recovery.
 
That said, it is becoming clear that higher retailing sales here and elsewhere have been driven, in good part, by substantial price discounting. In New Zealand that 5.7 per cent rise in card transactions was not only much lower than December growth comparisons over a number of past years, but it was accompanied by a rise of only 3.6 per cent in the value of those transactions. The average value of transactions was down on past Decembers – and that implies discounting by retailers intent most of all on lifting turnover (even at the expense of margin). We saw signs of this in high profile advertising of sales before 25 December, not just after.
 
It must be said that discounting became easier as New Zealand Dollar appreciation in the final months of 2009 reduced import costs. In a competitive retail market, lower prices for imported goods should always benefit consumers.
 
There have also been reports of particularly heavy discounting by US and British retailers during their tradition post-Christmas sales seasons. At the same time, consumers have complained about retailers sharply reducing their ranges.
 
Are these all signs of the “new normal” retail environment, in New Zealand as well as the bigger, more wealthy economies?
 
The “new normal” is a term coined by US analysts as they peer closely at the post-recession world. It captures the idea that consumers are, indeed, back at the malls but that there are fundamental differences in the way they and retailers are behaving.
 
In the “new normal”, consumers are more frugal and more intent on bargain buying – and retailers are quicker to discount and more sensitive to shifts in demand. In the US, the National Retail Federation (NRF) says saving has become a “regular line item” for consumers and this strengthens their focus on shopping for value when it comes to other items.
 
The NRF says recovery from recession coincides with a shift in consumer power to Gen-Xers and Millennials. Baby Boomers are retiring after three decades of fuelling the retail economy – and that role has gone to younger generations who have higher income, and are more price-driven and more tech savvy.
 
The NRF sees clear implications for retailing: “Value retailers” will thrive (and not those who discount only periodically), reacting to trends will become even more important, online sales will grow, and new technologies will become essential tools of business. Consumers are going multi-channel, expecting to have information on products and product availability from competing retailers and through different channels. They will demand technologies that empower their choices, from the ability to buy online to the in-store convergence of shopping options.
 
The NRF says there is no more time for US retailers to keep stalling on RFID (radio frequency identification). In the “new normal”, accurate data on inventories and on things like stock turn become even more important – and RFID, especially with Electronic Product Code (EPC), through the supply chain and in-store is the technology that will deliver these.
 
Time will tell whether discounted prices become a more enduring feature of the New Zealand retail scene. But we can be assured that younger consumers are coming to the fore, and that they are likely to be more demanding of choice and convenience. Post recession, now is a good time for retailers to take a fresh look at how they do business and the technologies they use.
 
Ends

By Gary Hartley
GM - GS1 New Zealand
www.gs1nz.org