Next Friday sees the start of the main shopping period in the US – ‘Black Friday’, the day after Thanksgiving. But increasingly, consumers are giving the stores a miss. Or even worse (from the retailers’ viewpoint) only visiting to check out products before buying them online.
Thus Wal-Mart, the largest US chain, is now having to extend its Black Friday sales model over an entire week, in an effort to lure shoppers into its stores. As its chief merchant officer told the Wall Street Journal:
“Because Black Friday has become the whole week, we want to make sure we have compelling offers across all days”
Even worse (again from its viewpoint), is that it is now forced to match its online prices in the stores, AND to match those of Amazon. These trends meant that until Q3, it had gone 7 quarters without any sales growth.
The US is not alone in seeing major pressure on retail sales. In the UK, grocery sales have just fallen for the first time since records began in 1994. This confirms the dramatic shift underway in demand patterns – normally grocery sales would be resilient to almost any kind of external shock.
BYE-BYE THE ‘NICE DECADE’
Most of us have spent our working lives in an era when economic downturns were very rare. The world’s largest economy, the USA, suffered just 16 months of recession in the 25 years between 1982 – 2007:
- Those people who began work before this era have mostly retired
- Younger investors and executives have never experienced a period where demand did not quickly recover
But now this NICE economy of Non-Inflationary Constant Expansion is fast disappearing. Instead, the retailers’ woes highlight how it is being replaced by the New Normal.
The key issue is the transformation of the consumer. Today’s ageing population mean that consumers are no longer always “cash rich and time poor”. Instead, more and more are “time rich and cash poor”. They no longer need, or can afford, to visit hypermarkets. They also increasingly prefer the community feel of small shops in their neighborhood.
As a result, retailers are now having to scrap plans for new stores, and are also closing existing stores due to lack of demand. As the head of UK supermarket chain Waitrose told The Telegraph this week:
“Supermarkets will have to reinvent themselves in order to survive a shift in spending from out-of-town stores to convenience shops, online and the discounters.
“This is as fundamental as supermarkets reinventing what food shopping was all about. I think we are at one of those inflection points where customers are acting differently and retailers are going to have to respond to it. Survival depends what they become.
“Survival depends on your powers of reinvention really, because the model has changed.”
Retailers are on the front line of business, dealing with consumers every minute of the day. And they are clearly signalling that a paradigm shift is underway.
My mind goes back to one of my first-ever posts, in July 2007, which highlighted how Wal-Mart and Tesco were warning of much tougher times ahead.
Events proved they were right then. It would seem sensible to assume their message today is equally relevant.