While the fundamentals of retail in Western Europe remain the same, it is increasingly difficult to stand out from the crowd. Consumer appeal is critical to success, but the mass market has turned: Today's European consumer is promiscuous yet discerning, satisfied yet demanding. Retailers are vying for consumer attention in an increasingly competitive arena where monogamous consumer-retailer relationships have fallen apart, blind dates are back in fashion, and the little book of rules has been rewritten.
If consumers are playing hard-to-get, what strategies should retailers employ to successfully woo them? First, rather than taking them for granted they need to build a deeper understanding of what makes consumers' tick. Second, retailers must review whether what they have to offer is compatible with their core consumers' desires — and act accordingly. If the relationship is worth fighting for, retailers must work quickly to regain favor by refocusing strategies to meet, if not surpass, expectations. Should retailers find that European consumers have outgrown them they must quickly dust themselves off and move on to fresh, but carefully chosen, pastures.
What makes ’em tick?
In Western Europe, the population is old and getting older, causing shifts in both the type of products required and the trigger to purchasing. For example, the demand for parental/children's goods is declining while many household goods are being purchased as replacement items. Coupled with this is the rise of individualism manifested not only in the growing number of single households but also the continuing growth of women in the workplace. All this points toward growing consumer independence in Western Europe. If consumers are largely fulfilled, retailers must concentrate on developing a sense of want rather than need for their products.
In recent years, a succession of food scares has violently shaken European consumers' trust and energized the mainstream to take ownership of such issues. As a consequence, European consumers now demand accountability from retailers — accountability for purchasing decisions, for the quality and the range of products they offer, and for the level of service across all sectors. Meanwhile, consumers are increasingly price-sensitive. Coupled with low inflation rates, the Internet is serving as a private investigator, providing price transparency across retailers and highlighting severe price disparities across Europe. Retailers cannot hide from informed consumers.
At the same time, these newly empowered consumers are full of aspiration. They buy branded goods as an expression of their true identity. There is nothing new in spending to display social status or discernment. However, consumers are not simply buying luxury products. They are buying into a wider experience, an associated lifestyle. Further evidence of this experience economy is represented by the growth of consumer spending on leisure and other services. To continue courting consumer attention, lifestyle retailers will be required to strengthen the consumer experience beyond brand.
Consumers want to achieve something more than the mere purchase of the product itself. Perhaps they want the satisfaction of finding a good bargain, or the feeling that they have enhanced their lives in some way. The result is a market polarization between discount (value/volume) and luxury (perceived lifestyle/brand) offers, leading to the erosion of the middle market.
Indeed, sales reports from the end of January 2000 illustrate that the European middle market suffered weak sales growth last year. However, those reports suggest there may be a happy ending for middle market players that can successfully target specific markets, expand the range of goods they offer, and support marketing with quality yet differentiated products. In contrast, middle market operators still hoping to achieve mass appeal or failing to support strong niche marketing with product are in for broken hearts.
Can I change?
Reengineering retail strategies is a difficult process and can be impeded by existing property commitments as well as scarcity of the right outlets in desired locations. For example, in the light of strong spending on new technology, middle market men's wear is facing particularly difficult trading. Co-locating men's wear with sister women's wear is perceived as a strong strategy for increasing sales because research indicates that women influence more than two thirds of men's wear sales. This co-location strategy has significant implications for the size of new stores, which must be designed to accommodate a wider product range. This may lead to a large disposal process of existing smaller stores, perhaps held on long leases.
“Consumers want to achieve something more than the mere purchase of the product itself. Perhaps they want the satisfaction of finding a good bargain, or the feeling that they have enhanced their lives…”
For many stores, the original catchment analysis may not have foreseen the impact of new technology, which further increases the competition for share of consumer spending. Thus many European retailers may have over-expanded their operations. Electrical goods retailers are keen to stress that the boom in mobile phone purchase is now spent. However, it is often overlooked that the larger transfer of consumer spending is not for the handset but for the continued service.
When put together with the growing number of health, leisure and entertainment subscriptions, the leakage of consumer spending away from retail sales is seen to be significant. In addition, retail sales are concentrating in a decreasing number of dominant regional and sub-regional retail locations. Thus retailers must look to rationalizing their holdings and seeking incremental growth in existing profitable stores by expanding their share of consumer spending through an extended product range, requiring larger, not more stores.
The process of globalization adds further flame to the polarization fire. European consumers are being pursued by a greater number of suitors across all sectors as the number and rate of cross-border moves accelerates. The downside for retailers is that this leads to strong competition for a limited number of large outlets in what is a decreasing number of target locations, increasing the cost base at a time when margins are under pressure. In addition, retailers must take account of cultural diversity and adapt retail formats accordingly. However, there is also an upside for retailers. Globalization, whether achieved by merger and acquisition, organic growth, franchising or a combination of these means, leads to greater economies of scale and increasing purchasing power. When combined with effective logistics management this may be leveraged to lower the cost base thereby maintaining if not enhancing margins.
Keeping the dream alive
Retailers need to work hard to keep the spark alive in their consumer relationships. Playing the field is no longer an option, it is time to focus upon the individual and deliver on promises — value, quality, lifestyle, experience. This requires a new approach to target marketing and by consequence, site selection. Retailers must seek a deeper understanding of consumers' aspirations and values through blending socio-cultural, socio-economic and socio-demographic analysis. Failure to do so can only accelerate the growing divorce rate with many retailers already staring into an empty glass declaring that their consumer didn't understand them.
ABOUT THE AUTHOR
Dr. Brenna O'Roarty is an associate director and head of European Retail Research at Jones Lang LaSalle. Based in the London office, she undertakes a research and development role, focusing upon the impact of technological, economic and social change upon market participant behavior including occupier and investor strategies, valuation and investment decision making, with a view to the development of innovative solutions. She has published widely in key property journals and is a member of the European Real Estate Society.