Changing consumers

Changing consumers: WRC 09 insights

ANDREW JOBLING, WGSN 04.06.09

Consumers are changing.

Whether being moulded as a result of the global financial crisis, shaped in response to the advances in technology or enlightened as emerging markets flourish, the shoppers of tomorrow will be very different from those of today.

Of all the important themes to emerge at the World Retail Congress, held in Barcelona in May, one of the most important stressed that many previous strategies could no longer be relied upon. Consumers are changing, and retailers need to keep up.

Several factors are influencing these changes, and unsurprisingly global recession is one of the biggest. The slowdown has hit the consumer mood hard, shifting attitudes. It has altered the perception of what is required in a product and, importantly, what is desired. In many ways, the aspirational consumer is no longer aspiring but instead seeking out value for money, with Jim Stengel, CEO of Jim Stengel LLC, noting that it had "become fashionable to be thrifty".

David Roth, CEO of WPP's retail division The Store, said that consumers have reprioritised and there will not be a return to "business as usual". Instead there is now a focus on sanity, and from a retail perspective that means range rationalisation becoming the new cost-cutting agenda.

One area likely to feel the effects of this mood shift is affordable luxury, with consumer aspirations to be seen as enjoying the glamorous trappings of wealth being replaced by a focus on value. Concetta Lanciaux, CEO of Strategy Luxury Advisors, describes the process as trading up, where consumers are still willing to spend but only on products that offer inherent quality rather than superficial glamour.

"Trading up means removing fake," she said. "Consumers today prefer to buy semi-precious stones rather than zirconium."

But amid the frugal mood, Stengel suggests that there are "ripples of opportunity" for retailers who really emphasise the consumer experience throughout the retail journey. Play an important role in their lives, stand for something that matters and focus on the ownership of the product rather than just the purchase, he says.

"Those that really understand what is going on with the shopper will be the ones that lead the way in the future," he said.

Emerging middle classes.

Emerging markets are seeing a different consumer change, driven primarily by a rapidly expanding middle class. China, for example, is expected to see its middle class surge from 6.15% of the population currently to 55% by 2020, and fast growth is predicted in many other developing markets.

What this means is that demand for many items, including discretionary consumer goods, will drive upwards. Of course this isn't a new development - emerging markets have interested major retailers for years, but they have met with mixed success and speakers at the World Retail Congress offered some explanations for this.

Key recommendations included focusing on local markets rather than trying to implement broad strategies; and really getting to know what the local consumer wants - something that can vary wildly across huge countries. However an important point to note is that as markets mature, so does the consumer, and those in some of the major target countries are learning quickly.
"The Indian consumer will be very demanding," said BS Nagesh, MD of Indian retailer Shoppers' Stop. "There is a new class of consumer that demands his rights and knows to shift to someone else if they are not satisfied."

Bijou Kurien, CEO at Reliance Lifestyle, went on to add that consumers in the country were now much more brand-aware, demanding the latest season's ranges as well as a much wider choice. However, they are also more willing than ever to spend, due to a higher confidence in the future among young consumers.

Technological drivers.

Aside from economic factors, technology is playing a huge part in the changing consumer. Recent years have seen e-commerce, m-commerce and social networking all combining to add options for consumers and shake up the retail environment. But now consumers themselves are changing as the technology becomes an integral part of the shopping experience - and what's more, they are demanding that retailers change, too.

John Donahoe, eBay CEO, said that consumers are naturally now integrating online research with store visits, and with that integration only set to increase they are "demanding that we break down the boundaries" between online and brick-and-mortar stores.

"We need to embrace the fact that online and offline are blurring, and the consumer wants convergence," he said.

Social networking is seen as a crucial strategy, with retailers keen to tap into the powerful word-of-mouth marketing opportunities it could provide but also realising that the technology revolution has changed the way brands need to communicate.

Roth noted that consumers who have grown up in a digital world are used to communicating through interconnected "channels of me", and as a result the way a consumer interacts with brands has changed for good - with retailers needing to be much more efficient in their communication across the whole path to purchase.

However while social networking offers a multitude of possibilities, retailers need to be careful to maintain the medium's authenticity - attempts to turn it into a sales and marketing tool are likely to be met with resistance by the very audience they are trying to connect with.

They also need to be able to treat it as both friend and foe. Hot Topic discovered that the popularity of social networking was challenging the time-honoured tradition of teens hanging out at the mall and, as a result, having a direct hit on its sales.

"Retailers need to find a way to get people into their stores, rather than relying on mall traffic," said CEO Betsy McLaughlin.

The answer for Hot Topic was to have live music with bands playing in store, and the retailer garnered results in the shape of a turnaround from negative comps to record six consecutive months of gains.

Key points
Recessionary pressures
• The global recession is provoking long-term changes in consumer mindsets.
• Value is key, with more-superficial aspirations in decline.
• Retailers need to concentrate on consumer experience, offering value not just at the point of purchase.
Emerging markets
• Booming middle classes offer huge potential but successful market entry is often tricky.
• Retailers need to concentrate on local markets rather than broad-based strategies. Get to know the consumer.
• Consumers are becoming more educated and more demanding.
Technological drivers
• Consumers are pressuring retailers to "break the boundaries" between online and brick-and-mortar stores.
• Increasing technological integration in shopping experience is changing the way consumers shop.
• Brands need to communicate better across all paths to purchase.
• Tapping into social networking offers huge possibilities, but there are also challenges.

© WGSN 2009