Recessions are challenging times, but not just for the obvious reasons. Most of us rightly associate recessions with unemployment, slumping sales, bankruptcies, and other negative economic news. The most important characteristic of any recession, however, is the comprehensive change that it brings.
Throughout the history of capitalism, recessions have heralded fundamental paradigm shifts in our economy that have particularly reshaped the retail industry. Certainly the retail ecosystem that existed in the summer of 2008 no longer exists and will never return. However, the current recession offers retailers a new opportunity – not only for recovery, but for fundamental change and growth as well.
The good news for retailers, ironically, is that rarely are they offered a better time to grow their business than in the period immediately following a recession. During a normal economic cycle, consumers tend to be loyal to specific brands, retailers, and locations. During this time, however, necessity encourages the consumer to be more open-minded and opportunistic. Consequently, they are willing to experiment-shop at different retailers, in new locations, and for unfamiliar products.
What’s more, these habits usually remain after the recession ends. In addition to such changes in consumer behavior, the retail landscape itself will be distinctly different. Some major brands will vanish, retailers will close, and the demographics of shoppers will consequently be reset with new expectations regarding service, selection, and price. Therefore, we can expect significant market share to change hands as consumers realign their loyalties and redefine the relative importance of convenience, service, brand, and price.
Retailers and their suppliers can learn from this. The winners in the post-recession won’t be determined sometime in the future, but now, while we’re still in the throes of the recession itself. The winners will be those who have used this challenging time to define consumer expectations, remake their brand identity, and ultimately capture the market share. Consequently, for companies with a long-term view, a downturn presents a two-fold challenge that can become an opportunity: they must survive the recession while preparing for the recovery.
So what can companies do now in this paradoxical time of difficulty and opportunity? Here are five strategies that companies can implement concurrently so that they will be among those who emerge from the recession as winners. Right now, companies need to define the consumer experience, redesign for the customers they want, reevaluate the competitive landscape, value and nurture their company’s core competencies, and focus on the company’s most valuable asset – its people.
Define the Consumer Experience
The consumer experience is the next frontier in retailing. Over generations, the retail value proposition has shifted from availability to service, and now to the experience provided in the store. This change, initiated by companies who have stretched the boundaries of retail (such as Bass Pro, Starbucks, and others) has now become the mainstream, and many major retailers are striving to create their own experience identity. The in-coming CEO at Best Buy, for example, is planning an inspirational series of customer experiences as one of his top priorities, and he’s not alone. Categories leaders and even discount stores and warehouse clubs are all working on the same challenge.
Defining the consumer experience is a collaborative venture. Thus, as the experience gets designed, retailers will ask their suppliers to share the challenge, to provide new displays and working models, better collateral, and more training for associates. Manufacturers can anticipate such retailer requests, however, by understanding how they can influence the shopping experience and proactively contributing to the experience definition. By this stage in the recession, both retailers and manufacturers should be working in earnest to clearly articulate an experience design, the sound foundation for the other strategies.
Redesign for the Customers You Want
Because current customer profiles will change during the recession, it can be difficult for retailers to maintain their former level of intimacy with clientele or even retain them. Conversely, consumers who have previously been loyal to competitors are now up for grabs. So, while companies may lose some customers during a recession, they can replace them with others if they have prepared wisely. The key to achieving a net gain in customers is to re-architect the company’s strategies based on the profile of the core customer the company wants for the post-recession, rather than relying solely on the kind of customer it has attracted in the past.
Defining the post-recession customer profile and recognizing those consumers may be difficult but understanding their preferences and motivations may be even more so. However, an analysis that provides a clear description of the customer and their expectations is essential. Understanding the new customer allows the retailer or manufacturer to thoughtfully match the current ‘experience assets’ (the attributes of the store or product that contribute to the shopping experience) with the new customer’s expectations. This insight is absolutely necessary in designing the shopping experience and effectively implementing the other strategies.
Reevaluate the Competitive Landscape
Just as customers change because of the recession, so will the competition. Some competitors will go out of business, some may exit one product category to focus on another, and others may simply reposition themselves. Therefore, another essential part of preparing for the recession to end is a thorough assessment of the competitive landscape. Such assessment helps uncover new opportunities as well as any product / service gaps that may help identify uncontested market space.
Even now, future customers are resurveying the market, looking for the best experience to suit their tastes / preferences. Understanding the competitive landscape helps companies understand how they can stand out from their competition. All too often, companies attempt to copy a competitor who seems to be getting results. While an ‘availability economy’ or a ‘service economy’ can be copied, an effective consumer experience cannot be replicated to yield the same or better results. Consumers judge the effectiveness of an experience by its uniqueness, its authenticity, and genuineness. Original experiences therefore engender trust, admiration, and brand loyalty, while a copy generates consumer suspicion and contempt.
Value and Nurture the Company’s Core Competencies
During the urgency of a recession, companies often lose track of their core competencies, the company’s unique assets or building blocks which give that company its advantage over competitors. In the rush to grow revenue, they invest precious resources on ventures outside of their competencies. Similarly, in a rush to cut expenses, they may divest or layoff critical businesses or people that are key ingredients to a core competency. Consequently, they may not only fail to produce results, but could undermine their central value proposition or even exclude possible shopper experience strategies after the recovery.
The task of tracking and managing core competencies through the recession has practical implications for the long-term viability of the company and its prospects for recovery. Thoughtfully monitoring the company’s core competencies helps ensure that those assets survive budget cuts and layoffs and remain in place for the future. On the other hand, non-core activities and functions should be cut, a necessary step in retooling the organization to meet future opportunities.
As the economy shows signs of recovery, building partnerships, joint ventures, and alliances will capitalize on the core competencies of both parties. This allows both parties to respond quickly to improving market conditions and to be nimble enough to respond to opportunities without large up-front investments.
Focus on Your People
Of all the tasks retailers face during a recession, managing employment is perhaps the most difficult. A retailer’s employment strategy impacts both the survival of the company during the recession and its position in the marketplace once the recession is over.
Employers can identify several points in the recession cycle when it is important to have a specific strategy for employees, especially for those who directly interact with customers. The first is when it becomes necessary to have headcount reductions and layoffs. At this point, it is essential to identify the key individuals who embody the experience a retailer would like to convey to its customers. This is an asset more likely to be linked to the employee’s behavior or relationships with customers than to their product knowledge.
The second point in the recession cycle when an employee strategy is useful is at the start of the recovery. From that point forward, employees will have an increasing number of employment options and may be tempted to change employers for personal advancement or enrichment. During this phase, concerned employers must proactively manage retention. The company has essentially invested in the employee by retaining them through the downturn, and to make sure the investment pays off, the company’s strategy should provide the associate multiple options to find personal satisfaction, increased loyalty to the company, and more opportunities for advancement.
At this second stage, training associates must also become an integral part of the strategy. These associates have journeyed through the recession with the company and will be an integral part of the transition from the old company to the new company. While valuing the employees’ past contributions, the company must prepare the associate to be as strong a contributor to the new experience they are trying to create. What associates will need to learn at this stage is likely more about behaviors and communication / selling skills than additional product knowledge.
Recessions are like volcanoes: the eruption is destructive, but it leaves fertile ground in its wake. Surviving the downturn is difficult and requires decisive action, but the subsequent advantages can be numerous. Therefore, both retailers and their vendors should recognize that because the recession will bring about fundamental changes in the industry, they must begin the positive task of preparing for the recovery while the recession is happening. Competing in the ‘experience economy’ requires companies to implement strategies to leverage their core competencies and to have trained sales associates who can respond to the changing marketplace and to a new customer demographic.