The Upside of a Retail Downturn

Last Updated Oct 14, 2008 11:26 AM EDT

Economic downturns can do wonders for the retail sector, according to a KPMG/SPSL Retail Think Tank white paper. RTT compares the current slowdown with the last two recessions of 1974-75 and 1990-92 and reveals some positive outcomes for some retail operations.

"The need for innovation becomes even more critical when the environment becomes... turbulent," it says.

1970s recession results Retailers focused on pricing strategies and developed early customer data-gathering tools. "For the first time, retailers began to view their role as one of marketer rather than intermediary."

1990s recession results Retailers revisited their supply chains and identified efficiencies. Electronic Point of Sale systems and research also yielded more customer knowledge -- resulting in promotions innovations and rewards programmes such Tesco's Clubcard.

Today Consumers stand to benefit from a competitive environment in which stores go all out to win their business with price and promotional offers, product and service improvements. Quality and value are priorities, along with keen prices.

Discount operations such as Lidl and Primark, along with those selling to the super rich, or online stores such as Asos will be relatively impervious to recession.

Those that have invested in supply chain and logistics innovations -- sharing transport or warehousing, or refining just-in-time stocking systems -- will also fare better.
Longer term, the convergence of communications and information technologies looks set to re-shape the sector, giving retailers more cost economies and making it easier for brands to branch out into new services (financial services, health, leisure) and target customers more precisely.

RTT predicts some positive outcomes for those that survive the slowdown.

  • Good retailers will get better, in a case of 'survival of the fittest'.
  • Power will continue to shift to the consumer, as retailers vie for their spend. Retailers will work even harder to understand customers, target their ranges and add value.
  • Bigger (consolidated) retailers will exploit economies of scale and will be able to invest yet more in understanding customer needs.
  • Overseas opportunities. Emerging markets will become more attractive as domestic demand declines. Debenhams is said to be looking to expand in India and Russia further.
  • New, groundbreaking strategies will emerge and retailers who are effective in reducing costs now will be able to grow faster as the economy improves.
(Photo by gruntzooki, CC2.0)