News & Views

News

Report

ChaseDesign Retail Report #4: Value Is Back

Value Shopping

People often look to save money, but in today’s economic climate, it’s become a necessity for many American shoppers. According to Fortune, more than 40 million people in the U.S. are now unemployed, which means 25% of those employed at the end of 2019 are now out of a job. We’re officially in a recession, and according to Forbes, the average economic downturn lasts 1.5 years. And even in a robust economy, nearly half of Americans make $15 or less per hour, making perceived value a crucial driver of behavior.

At least two things are true now: 1) Consumers have fewer dollars to spend and 2) They have a lot more apprehension about their financial well-being. It’s a potent combination that means even if someone has enough money to buy something, they may choose not to out of fear itself. The psychology behind spending is changing. Recessions give us the opportunity to redefine what we value. As a result, what can we expect in the months—or perhaps years—ahead?

Just the Basics, Please

Consumers will focus on what they truly need like groceries, household goods, and personal care items. Their search for savings will translate into more value packs, store brands, and affordable meal ingredients vs. prepared foods. Discretionary purchases will be delayed, reduced, or cancelled entirely. According to The New York Times, Americans are already radically changing the way they spend on non-essential products. As the recession continues, this is continued bad news for anyone manufacturing and selling apparel, home furnishings, appliances, and other specialty goods.

Value Retailers Will Dominate

Even during last year’s robust economic climate, the retailers with the most new store openings were Dollar General, Family Dollar, Dollar Tree, Five Below, and Aldi. Now that 2020 is here and we’re in a recession, we can expect value retailers, which were already doing well, to now be supercharged. For example, according to Supermarket News, Dollar General is opening 1,000 new stores this year (up from 975 in 2019).

Price Becomes the Expectation

For retailers from Walmart to Target to Kroger, it will become increasingly important to provide cost savings and measurable value back to shoppers. This will likely mean more emphasis on store brands like Smartly at Target and Equate at Walmart. In the current recession, many shoppers are trading down to private label. There will be an increased sense of urgency around pricing and trade spend programs from vendor partners, as competitive price points become essential.

How to Add Value for Shoppers

With value as a core driver now, what are the implications for how you do business?

  • Investment in marketing declines during recessions. But for companies that maintain spend, the relative impact of each dollar is increased. This can be a time to seize market share from more timid competitors.
  • Cost cutting is necessary in a downturn, but avoid cutting consumer and shopper insights research budgets. Category roles and shopping behaviors are changing. Relying on last year’s insights may lead you astray.
  • The psychology of shopping changes in a recession as decisions are shaped by emotional reactions to the economy. Rethink customer segmentation with this in mind.
  • Dollar stores and value retailers will loom larger. As a marketer, it’s a good time to re-evaluate trade investment plans and channel strategies. MARS brought a dedicated M&Ms SKU to Dollar General as part of increased focus.
  • Value is more than just low price. Brands should reassess the full customer experience for opportunities to improve. If you’re a retailer, store services, loyalty programs, shopping apps, and well-trained store associates can all increase perceived value by shoppers.

 

Recessionary times will create new shopper behaviors, a need to rethink assortment and category presentation, and more. Our team at ChaseDesign can help. Contact Peter Cloutier at pcloutier@chasedesign.net.