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Retail Lament: Consumers Are Still Avoiding the Stores

Compared to the disaster area that was 2009, this earnings season has seen better numbers, but don't kid yourself - shoppers are still skittish. And some retailers have seen specific weaknesses. Walmart (WMT) has suffered comparable store sales declines, due to deflation and aggressive price promotions. Kroger (KR) has seen its gross margins squeezed as it lowered prices to lure in ever-more-frugal consumers. Even Dollar General, the discounter whose results improved as the economy tanked, saw its comp gains weaken at the end of last fiscal year.

Why are the numbers so weak? One important factor: Consumers are avoiding stores. That is the conclusion of The Nielsen Co. Specifically, the market research firm cites the following factors:

  • Consumers made fewer store visits in February -- four percent fewer compared to the same month last year -- as part of a downward trend that has hurt supercenters, warehouse clubs, supermarkets, mass merchandisers and dollar stores since the beginning of the year.
  • Consumers visited fewer stores when comparison shopping, reducing the opportunity for retailers to promote impulse sales.
  • Keen to boost traffic, retailers pushed private labels and coupons, trimming gross margins.
An examination of monthly shopping trips shows growth in the number of retail trips made in the recovery has flattened out, and the effect includes all major retail sectors. Given the circumstances, retailers need to develop new strategies to bring people into the shop and then get then to buy.

One response is to expand private-label and licensed brands. Retailers that have done relatively well of late, including Kroger (KR), Walmart, Costco, BJs and Dollar General. Because private labels tend to be cheaper, this can depress revenues per trip, but the profit margins tend to be higher and there can be a nice boost in customer loyalty.

Kroger has been particularly active in this regard, which is one reason why it is emphasizing that, in terms of tonnage, its sales are healthy. It is also working hard to get customers to sign up to its loyalty card program. As an extension of its private label program, Kroger is linking coupons and gas discounts to its loyalty cards. By generating loyalty card-linked discounts, Kroger is turning all products so promoted into something like private-label goods.

Other retailers are following suit. Kohl's is also providing discounts for customers holding its credit cards -- particularly over the holidays. That seems to have paid off for Kohl's, which is doing better than its competitors in the discount department store sector.

Retailers such as toy, electronic, department, liquor and home improvement stores have had a harder time developing strategies that generate more shopping trips, Neilsen noted. Despite Kohl's relative success, department stores have seen shopping trips fall off by seven percent since February 2009. Over the same period, toy store visits are down 18 percent, electronics stores, 33 percent and home improvement stores, 6.7%.

Retail strategies to get consumers through the door don't have to be complex. Offering free reusable shopping bags can help boost consumer shopping on given trips, Nielsen noted, and create a small but visible link between a shopper and a store. Also, the market research firm related, concentrating on one or two specific value propositions can help retailers stand out from the crowd.

For example, Fresh & Easy Neighborhood Markets hit its stride by offering family-style deals. The Tesco (TSCO)-owned chain developed the 98 Cent Produce Pack, so shoppers could purchase a day's worth of healthy fruits and vegetables at a low price. Fresh & Easy's inexpensive, often ethnically-oriented meals for four people have positioned it as a destination for families who want both value and convenience. And Bed, Beth & Beyond (BBBY) has added discount health and beauty departments derived from the Harmon chain it acquired a few years ago. The retailer has credited those operations with boosting its results, which have strengthened in recent months.

The lesson: Retailers that can point to a specific, readily understood bargain proposition -- whether it is private-label products, value packs or inexpensive shampoo -- can keep shoppers coming.

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