The Retail Review - Consumer Insight Into Changing Habits And Shifting Patterns

Foreword

In a single lifetime we are in transition, looking back at our grandparents' generation and taking a forward look to the world our grandchildren may grow up in. We have changed our consumption habits and shopping patterns and now more than ever are re-evaluating our values and the search for value.

In this report we consider more than the outlook for Christmas 2009. There have been some profound and interesting changes over time and all have significant implications for the retail landscape.

We start by looking at the shopping basket and typical household expenditure over time reflecting on what our grandparents may have purchased and comparing this to where we spend our money now. We also explore the shift in the balance of power over what we buy and how we buy it during this time period.

There is considerable research and many reports published each year about the 'consumer' and some assertions of late about the 'new consumer'. However, there are some constant and undeniable forces that determine our ability to spend, as well as the need and desire to consume. These are examined and form the backdrop of our understanding of the 'smart shopper' today. Our view is that the 'smart shopper' has been with us for a while, influenced by globalisation, the digital age, the availability of shopping venues and more recently the recession, and we have mentioned some of this in our previous reports. The smart retailers have picked up on the trends that the recession has brought into sharper focus and these retailers are winning in these more challenging times.

We give our perspective on the 'golden quarter' but more importantly a prognosis of the future retail landscape and what retailers need to consider to 'breakout' of this downturn and establish strategies for adding value.

Our analysis shows that the health of the economy is underpinned by consumer spend which represents about 65% of GDP. We also know that the UK has world class retailers and suppliers to retail in this consumer business industry. This industry now needs greater economic and political certainty to give it confidence to plan for prosperity and the shopper needs similar certainty about the future so they can back Britain and return to spending with confidence.

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Executive summary

What granny used to buy

In 50 years we have moved from post war austerity to current frugality in an age of superabundance. Our grandparents purchased tinned corned beef and now we buy frozen chicken nuggets! In our previous reports, notably in 2006, 2007 and 2008 we identified and highlighted some of the significant changes such as recent trends towards: value; provenance and heritage; the green agenda; and the digital age. Consumers have adapted their shopping habits and spending patterns over many years and will continue to be adaptive, like chameleons, in this recession and beyond.

Constant and undeniable forces Although there are shifting patterns in the way we consume there are distinct overarching parameters that determine what we spend. These forces are grounded in people's income, wealth, demographic profile, 'lifestage' and shopping mission. All these forces come together for each individual to create a complex and discerning shopper. More wealth, affluence and diversity means that mainstream mass marketing is less effective than 40 years ago.

Push me pull you

The balance of power has shifted from government, to manufacturer to retailer in the last 50 years but now the customer has reclaimed the crown. Control is back with the 'smart shopper' and retailers will need to adjust the way they interact and serve this empowered person and the multi-dimensional communities that these people live in. Trust and transparency have become key drivers of the values required by the 'smart shopper'. These savvy people are demanding good corporate citizenship from the retailers they shop with and want to know that the retailer's values align with their own.

Digital age The influence of technology and information is now 'mainstream' and affects consumer habits. The speed of innovation and change in the last 15 years has been pandemic. The communities that have been created transcend time zones and geographic boundaries and supply 'trusted' information to shape shopping habits. Retailers need to be mindful of how they interface with the 'smart shopper' be it in the market place or market space. Being on-line and always connected is a way of life and this is a permanent shift in behaviour.

Global village

We are now living in a global market place and the extent of how interdependent the developed western economies are, became self-evident with the financial crisis. There has been a surge in public awareness and pressure from many sources about climate change and the desire to reduce, reuse and recycle. The smart shopper will make choices underpinned by an awareness of green issues subject to their budgetary constraints. Sustainability is now on the agenda around the world and retailers are expected to conform and adapt their business.

Location, location, location The retail landscape has gone through considerable growing pains. In the past ten years total retail capacity has increased by about 22%, on top of that more than 50 million square feet of selling has come from the internet, adding the equivalent of another 50 million square feet of space – yet demand has turned flat. Our analysis shows that the sales per square foot has been trending downwards and does not reflect well on return on investment metrics or adding value. A clear indicator that consumer insight rigour has not been applied in the rush for retail expansion. We are therefore now in an era of retail space abundance with consequences for retailers, property companies and local authorities.

Recession and recovery The non-inflationary continued expansion (NICE) times have allowed the weaker retailers to survive. The recession has brought about a sharp focus on those without credible retail offers and robust balance sheets. Consumption is about 65% of gross domestic product (GDP) so any views about GDP are driven by what happens to UK consumption. The difficulty here is that consumers are struggling with: high debt levels; low savings; rising unemployment; and reduced access to credit. Overall it looks as if total household spending is unlikely to return to pre recession rates of growth before 2012. The spend trend looks flat.

Golden quarter 2009

Our survey of consumers this year shows that the trend of last year continues. Avarice and accumulation of products has lost its shine and the glow of frugality gets stronger. In every category, like last year, consumers tell us that they will be spending less on gifts, socialising and food and drink. In fact 40% of consumers, compared to 24% last year, said they will spend less. When asked about the state of the economy 80% stated that it is currently bad but on the question of future outlook 74% said it would stay the same or improve. From a customer perspective the forecast is careful and constrained spending over the golden quarter with many consumers focused on reducing their overall debt levels. From a retailer's perspective our survey indicates a cautious approach to the festive season with the majority expecting a flat trading period.

Winning in challenging times

The report sections all show an intensely competitive market place which is essentially saturated with retail offers both in-store and on-line. Demand has dropped off significantly brought to an abrupt halt by the financial crisis and consumer confidence, which until recently, was at an all time low. There is significant mistrust of politicians and financial institutions and a retrenchment to only trusting family and friends. Also there is a search by the 'smart shopper' for value and an evaluation of their values evidenced by a move to provenance and frugality in purchase decisions. Overall we expect further retail casualties.

In spite of the events of the last year there are still many retailers doing the same thing and expecting a different outcome! What is clear is that those retailers that are responding to five or six of the changing consumer dynamics noted in this report are winning in these challenging times. Those retailers that are doing one or two are being left behind. It is the scale and increase in the pace of change that will determine the winners that breakout of the recession and breakaway to be successful in the world of flat spend trend.

1. What granny used to buy

   Post-war austerity to current frugality in an age of superabundance

   In 50 years we have moved from post war austerity to current frugality in an age of superabundance having taken a detour to explore luxury and premium products and services on the way. Consumption patterns and habits of the post-war era were shaped by the restriction in the supply of goods, the use of ration books and a need to rebuild Britain. The inherent values our grandparents grew up with were to 'waste not, want not' and to make, mend and re-use. Growing your own vegetables to cooking from basic ingredients was part of the mainstream and majority lifestyle.

   The National Statistics of the time show purchase patterns that focused on corned beef, condensed milk, soap flakes and a tin kettle. In 1957 a substantial part of the relative family spend, went on food...