New study confirms ‘shift to thrift’
Global business advisory firm AlixPartners says that its latest study on consumer sentiment in the US shows Wal-Mart increasing its importance in the office supplies space
AlixPartners’ 2010 Consumer Sentiment Index asked over 7,700 Americans from all key demographic categories to evaluate five attributes (price, product, service, experience and access) related to store choice, and then to rank more than 135 individual retailers on how they performed.
"What we are seeing here is a clear-cut ‘shift to thrift,’" said Matthew Katz, the head of AlixPartners’ retail practice.
"What is most important to consumers today is the intersection of ‘good-enough’ merchandise – not ‘the best,’ but good enough – and low prices. Consumers are saying that retailers must clearly understand this value equation or they will not part with their dollars. And they are incredibly comfortable switching to the channel and the retailer that offers real, no-frills, back-to-basics, honest-to-goodness value."
The AlixPartners study is the latest in a number of studies and economic data that point to a change in consumers’ buying behaviour due to the recession.
US household borrowing fell by almost 2 percent in 2009, the first drop in 57 years, while the US Commerce Department’s monthly personal savings rate – which measures savings as a percentage of disposable income – moved into positive territory in 2009, ending the year at over 4 percent.
A recent report by PricewaterhouseCoopers report found that 34 percent of all shoppers in the US had "significantly" changed their shopping behaviour due to the economy, while only 7 percent had made no change at all.
One upshot of this is consumers trading down, either by switching shopping destination or by choosing private label brands over higher priced national brands.
The latest Interbrand study, which ranks the most valuable retail brands in the US, saw hard discount brands Dollar General and Family Dollar break into the top 20 for the first time, with multi-channel discounters Wal-Mart and Target at numbers one and two, respectively.
"Trading-down behaviours related to the choice of retailer, product, or brand will lose some traction in the recovery, but private label brands (especially in Fast Moving Consumer Goods categories) will remain a significant factor due to their high quality at lower prices," notes the PWC report.
While the big question is whether these new purchasing trends will become permanent or will fade as the global economy recovers, there are suggestions that a ‘new normal’ is setting in as consumers get used to the idea of being more spendthrift.
The AlixPartners study finds that, in spite of technical signs of recovery, Americans remain "very" or "extremely" concerned about the economy and a majority of consumers plan to keep savings high and spending low.
Americans are also more pessimistic about when the economy will return to "normal times", with almost a quarter saying that they don’t think the economy will return to normal before 2013.
In every retailer category this year, product and price were the two most important attributes that consumers looked for, and service was last – a big change from previous AlixPartners surveys when service was ranked near product in overall importance.
The 2010 Consumer Sentiment Index covered 16 retail categories, including office supplies from Staples, Office Depot, OfficeMax, Wal-Mart and Target.
While office supplies fared better than other categories such as department stores, apparel and electronics, 31 percent of respondents said that they had reduced or stopped spending at specialty office supplies stores in favour of lower priced retailers.
The big winner in the survey was Wal-Mart, which moved up a place as the third most popular destination for the purchase of office supplies, behind Staples and Office Depot, but pushing OfficeMax into fourth place.
In fact, 50 percent of those who chose Wal-Mart as one of their top three destinations for office supplies said that the retailer was their preferred destination.
In addition, 37 percent who cited Wal-Mart as their preferred destination said that they did ALL of their office supplies shopping at Wal-Mart.
While Staples and Office Depot outscored the rest of the field in terms of service, this looks like being less relevant as consumers focus on product and price.
Interestingly, Office Depot was the only one of the five retailers to score above average marks on product, consumers’ number one attribute.
"Product remains the most important attribute overall in choosing where to shop, and retailers need to determine when consumers want high/best quality and when ‘good enough’ will suffice," said the AlixPartners report.
"As value continues to drive consumer choice, targeted and well thought out pricing strategies are critical, high-end consumers included," the report continues.
The office supplies superstore chains have been adopting a number of strategies for their retail operations as consumer spending habits change.
All three have been focusing on higher margin value-added services such as copy and print and tech services, positioning themselves as solutions providers for the crucial small business segment.
Office Depot and OfficeMax have drastically reduced their store openings and are looking to sign more deals with other retailers for store-in-store formats or private label product placement.
Staples, Depot and ‘Max are all investing more in their own private label ranges and not just at the lower end of the market. OfficeMax, in particular, has been striving to differentiate itself with higher end own brand ranges, and Staples’ M brand is another example.
They have the edge on Wal-Mart in terms of product assortment. That’s relevant while product remains the number one customer priority. Can they compete with Wal-Mart on price? Staples is in the best position to do so given its superior purchasing power compared to Depot or ‘Max, but trying to take on the world’s biggest retailer on price alone would be a risky strategy – hence the positioning as one-stop shops for business needs.