Retailers {+ J.Crew} Learn from the Recession

The recession has changed the way retailers do business. The following Associated Press article takes a look at how some retailers (including J.Crew) have addressed their methods of operation. (Click here to read it in its entirety.)

Lessons of recession resonate with retailers.
Thin small. Cut prices. Emphasize Value.
By Anne D'Innocenzio
September 12, 2009

The "Great Recession" and Americans' retreat into thriftiness are teaching retailers a new lesson: how to survive when consumers are focused on "needs" rather than "wants."

For years, shoppers splurged on everything from $5 lattes to $200 jeans, and retailers responded by opening more stores and offering more choices. Now, beset by high unemployment and limited access to credit, shoppers are limiting most of their purchases only to essentials or the best deals.

Retailers' first response to the sudden and sharp pullback in spending last fall was to offer deep discounts and more coupons to keep merchandise moving. But to survive over the long haul, the watchword for stores and product makers is "small." ...

The changes are likely to last for years. Americans are also getting used to their newly adopted frugal habits of saving more and spending less. "I don't think we are going to go back to business as usual," said Steve Sadove, chairman and CEO of Saks Inc., operator of Saks Fifth Avenue.

As companies woo buyers, shoppers are finding they're in control. And they're driving hard bargains. ...

Less is more
For retailers, the changes need not be devastating. In fact, those that survive will be leaner and more efficient.

"There's nothing like a good old-fashioned recession to make you run a better business," Millard Drexler, J.Crew Group chairman and CEO, said recently.

To stay in business, stores find they can't take big chances with what they put on the shelves and how much they stock of each item.

Merchants are now keeping less stock on hand and delivering goods into the store more frequently to keep stores looking fresh. Retailers hope that strategy will help cut down on discounting.

Apparel companies also are focusing on the most popular colors instead of oddball hues.

Power of lower prices
Manufacturers and retailers that held firm on pricing a year ago to try to protect their brands have felt the sting. ...

Price cuts are painful, so manufacturers and retailers maneuver to avoid them by identifying goods with strong demand. If they must cut prices, they cut costs, too, to maintain profit margins.

... Stores are putting more stock in store-label products, which cost less for consumers and tend to be more profitable. This year, 37.5 percent of business is expected to be from store brands, according to a National Retail Federation survey. Two years ago, that figure was 26 percent. That could go to 50 percent in the next few years, says C. Britt Beemer, America's Research Group chairman.

Marketing value
Consumers' focus on value and saving money has shaped how products are marketed as well. Sellers are becoming more sympathetic to consumers' woes in their ad campaigns.

In the past, "retailers had a hard time acknowledging (in ads) when things were bad," says Ellen Davis, a spokesman at NRF. They feared it would make business worse.

Now, higher-priced products like Hefty's odor-blocking trash bags are advertised as money savers because the garbage won't get so smelly that it has to be changed before the bag is full.

Consumers aren't going to be "hyped" to buy merchandise anymore, says Konheim of Nicole Miller. They want to be convinced that they're getting more value.

Even though this article shares a lot of information that we already know, I thought it was still quite informative. In particular, I have found myself cutting back from shopping this year. Moreover, the value of an item matters more to me now.

J.Crew's current strategy is to focus on reducing their inventory levels while selling unique goods at full retail price. They are not offering those amazing deals and sales, like we saw last Winter. What's interesting about this is that their competitors are still offering amazing deals left and right. Despite this heavy competition, J.Crew is outperforming them (& investors expectations)- so they are doing something very right.

What are your thoughts on the article? Do you disagree or agree with any of the points made? Do you find your shopping totals has been reduced or stayed the same level since last year? :)