Wednesday, September 17, 2008

“Value” Has Become Table Stakes

I was in NY in April on business and was stunned by the economic pessimism that pervaded every meeting. From retailers to private equity folks to investment bankers, the talk was of a retail recession and the economy being in free-fall. I was so concerned I called our financial advisor to have a serious talk about how our IRAs were allocated to withstand the impending stock-market swings. And since peaking in early May, the Dow has lost nearly 20% of its value.

As the shocks to our economic system continue and consumers feel the pressure increasing, retailers have turned bearish. According to a new study released earlier this week by BDO Seidman and reported by Retailer Daily, nearly half of all retail CFOs believe we will not see a meaningful improvement in the economy until July 2009. Nearly two-thirds of the Top 100 largest U.S. retailers reported decreased comp store sales in the first half of 2008 vs. the first half of 2007, and over half of their CFOs expect revenues this year to be below last year's.

In today’s economic climate, delivering “Value” is no longer an option. It is a requirement. Some brands staked out “Value” as their promise and point of differentiation from the get-go. Wal-Mart’s Every Day Low Pricing guarantee was a dramatic break from the pricing strategy of most of its competitors who marked goods up only to mark them down. Food 4 Less, The 99 Cent Store, and Ross Dress For Less were all launched as “Value” brands.

High-end brands are playing catch up, and talking “Value.” The NY Times recently reported that Whole Foods is offering deeper discounts, adding lower-priced store brands and emphasizing value in its advertising. It's even inviting customers to budget-focused store tours.

Expect the shouting about “Value” to continue. Meanwhile, differentiation increasingly hinges on other brand dimensions. Product intimacy, design and assortment, site selection, store design and format, and customer service all offer short and longer-term ways of standing out with customers. In the background, smart retailers like Urban Outfitter and J. Crew will keep working as described in earlier blogposts to deliver on these differentiating aspects of the customer experience to be ready for better days ahead.

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