Discounters Winning Our Wallets – Will Hearts & Minds Follow?

These days, consumers are more reluctant than ever to part with their hard-earned cash, and virtually every store is offering deals and discounts to entice them to spend. As USA Today reported last week, the stores with the sharpest pencils and price points are clearly winning the battle to draw in new customers. Walmart, TJX and Dollar General beat analyst expectations and are reporting decent performance while the competition misses badly. But who are they attracting, and are they building customer loyalty that will prove enduring?

The data suggest upscale consumers are shopping these discounters big time, and while they may be enjoying the savings, they’re not loving the experience. That’s the interpretation of the latest retail data from the American Customer Satisfaction Index. The just-reported 2008 rankings for Department and Discount Stores show Nordstrom and Kohl’s tied for first place in customer satisfaction (at 80). Dollar General declined more than any other Department or Discount Store (to 75). While Walmart’s score increased last year, consumers still rated it the worst of the lot. (70). Among Specialty Stores, Barnes & Noble and Costco came out on top (at 83). TJX scored third from the bottom (73), with only Circuit City (72) and Home Depot (70) scoring worse.

What’s a discounter to do? Hire more sale associates or improve training in customer service? Clean the stores more often or improve store lighting? No! They should trust what people are doing more than what they are saying. Consumers vote with their pocketbooks every day, and the discounters are winning.

There must be a way for Walmart to use its commitment to packaging and energy efficiency to help upscale consumers appreciate the store experience more. Shopping at Ross and Marshalls stores is all about the thrill of finding amazing deals on brand name merchandise. And at Dollar General, it’s all about what a buck will buy. In a classic judo move, discounters might creatively turn a no-frills store experience into a badge of shopper frugality. Aldi and Costco both do this well. What could Dollar General, TJX and Walmart do?

Most pundits are projecting that the new behaviors being formed in this economy will have staying power. So, upscale consumers may learn to hold their noses while shopping the discounters. Just maybe, a few innovative discounters will find ways to make them happy to come back again and again.

A Lump of Coal?

I’m a December baby, and growing up, I always felt gypped at the holidays. Looks like I’ll have company this year. Consumer confidence suffered its steepest monthly drop on record in October according to the Index of Consumer Confidence, as the worst financial crisis in generations continued to take its toll. That can’t be good news for anyone looking forward to presents in December.

This time of year, lots of studies are being released about what holiday sales will be like. Here are the answers to five questions on the minds of gift givers, recipients, and retailers.

Who’s still on the list? The Marketing to Moms Coalition reported this week that 62% of women are asking friends and family to forgo buying them a gift this year due to the economy. And while they plan to cut back on gifts to colleagues and neighbors:

• 96% said they won't let a bad economy stand in the way of giving gifts to their kids
  
  
• 86% will give gifts to their parents
  
  
• 85% will give gifts to their spouse or partner (Stay out of the dog house, guys!)
  

I haven’t seen any reports on men’s holiday shopping plans.

How much will we spend? Late last month, Deloitte Consulting released the 2008 findings from its 23rd Annual Holiday Survey. It showed that almost six in 10 consumers (59%) expect to reduce their spending this holiday season. Higher food and energy prices were the top two reasons for spending less, outpacing the economy and job uncertainty. Consumers expect to spend an average of $24/gift, slightly less than last year, and a total of $532 on gifts this year, down from $569 last year.

What gifts will we buy? For the fifth straight year, gift cards are expected to be the top gift purchase. Nearly 2/3 of consumers plan to give them. Over half of all consumers plan to give clothing and almost 40% plan to give CDs or DVDs.

Where will we buy them? According to the Deloitte Survey, with economic concerns high, the survey showed that value-oriented stores are at the top of the consumers’ list of shopping destinations. More consumers say they will shop at discount/value department stores, warehouse clubs, dollar stores, outlet stores, and off-prices stores. That means stores like Walmart, Costco, Kohl’s, Ross, Dollar Stores, Big Lots are likely winners. No surprise there.

What will the experience be like? With company budgets tighter than ever, expect to find fewer salespeople and helpers in the store or on the phone. Online customer support may be better than usual as multichannel retailers make choices about which channels to support, and online is arguably more cost effective for them. In an effort to manage costs, most retailers have been fairly conservative about inventory so out-of-stocks are more likely. That means it will be more risky than usual to wait for price reductions. Retailers are anxious to get shoppers to show up and will be relying on coupons and store circulars more than ever. Redemptions will be high as consumers are eager to save wherever they can. And in-store lines to check out may be longer than usual as people are shunning credit cards and paying with cash, which can take more time to handle than a credit or debit transaction these days.

All in all, it looks like consumers are still planning to spend - and spend smarter - on gifts this holiday. The trick for retailers, online and off, will be to make it easy and affordable for them to buy.