Retailers need to offer customers more services to make themselves indispensable and work with the government to help solve economic and social woes even as they deal with seismic changes in consumer behavior.
Departing Wal-Mart CEO Lee Scott told retailers they need to get involved in broader issues such as health care, immigration, energy independence and environmental sustainability, and said that doing so would resonate with shoppers and improve the bottom line.
“We need to tackle the hard issues,” Scott said at the annual National Retail Federation convention, noting that retailers in particular are close to what consumers are thinking. “As businesses we have a responsibility to society. We also have an extraordinary opportunity.”
Retailers have just come off the worst holiday season in four decades, as people watch their spending because of worries about job security, their retirement funds and the value of their home. That’s already meant falling sales and profit warnings at many retailers and could mean more bankruptcies to come.
Over the past year, the retail industry has been in the midst of a “great transformation” as consumer spending dropped and credit tightened, said Carl Steidtmann, the chief economist of consumer business at Deloitte Research.
Following an “orgy of debt” in the early part of the decade, “the consumer is no longer in a position to spend,” he said. “Retailers are in a ‘no-growth’ environment.”
The consumer-spending slowdown will likely be long-lasting, Steidtmann said, particularly as baby boomers who have been typically big spenders move into their 60s and 70s, spend less and downsize their homes.
While a new economic stimulus package from the government will have “some impact” on the economy such as more credit availability, Scott said, he doesn’t expect a quick rebound since “fundamental changes” in consumer behavior — an increased focus on saving and less buying — will likely linger.
On the Way Out
Scott, who was making his last public speech as CEO and president of the world’s largest retailer, predicted that the first half of the year will be “extremely challenging” and said he hopes the second half would be a little easier. But he believes fundamental changes in consumer behavior will linger even as credit loosens up.
Retailers need to understand that, even though some consumers still have money, they are being very choosy about their spending. Scott noted robust sales of flat-panel TVs at Wal-Mart as an example. He also cited strong frozen food sales as its customers have cut back on going out to dining out and want ready-to-eat meals.
Steidtmann, too, said retailers are going to have to toughen up as their competitors declare bankruptcy and liquidate — and as retail space contracts as malls shutter and banks continue limiting their lending.
Retailers reported dismal sales results for December last week, and a rash of stores have closed or filed for bankruptcy, and the trend is expected to continue. ShopperTrak RCT, which tracks sales and customer foot traffic at more than 50,000 stores, said Monday that it expects traffic to drop 16.4 percent and sales to fall 4 percent in the first quarter.
One way retailers can combat the weak economy is through innovation, said Stacy Janiak, vice chairman and U.S. retail leader for Deloitte.
She cited online retailer Zappos’ policy of offering new employees cash to leave as an example. After a training period, the company offers employees $2,000 to go — and feels those who stay are more likely to be dedicated employees.
“Standing still is not an option,” she said. Retailers must make sure they structure business around the customer, for example, offering not just products but services as well, such as a store installing an on-site clinic or a grocery store offering a family meal-planning tool, she said.
Scott expanded that idea beyond retail, urging businesses to take on even broader societal issues. Doing so can coexist with building shareholder value, he said, citing in particular the success Wal-Mart has had with its $4 prescription drug program.
While such changes are tough for retailers, he said, it may be healthy for society in general.
“I think right now (shoppers’) appetite is more toward living a little more differently,” he said.
Wal-Mart had often faced criticism from union-backed groups over issues from environmental concerns to wages and health care. But under Scott’s recent leadership, the company has been outspoken in its larger role it wants to play in such issues as health care, which has helped rehabilitate its corporate image.
It embraced more environmentally sound practices, such as focusing its efforts on selling compact fluorescent light bulbs and forcing suppliers to reduce excess packaging. It says its discount prescription drug program has cut costs for consumers.
Scott, who became president and CEO of Wal-Mart in 2000, is stepping down as chief executive on Feb. 1. He will be succeeded by Mike Duke, vice chairman of its international division.
Even Wal-Mart — which has benefited as shoppers switch to cheaper stores and focus on necessities — has felt the pressures of the weakening economy. The discounter reported a smaller sales gain at established stores in December than Wall Street expected and slashed its earnings forecast.
“We all had a tough Christmas,” Scott told the audience Monday.
The fallout from the bleak holiday season began quickly. Discount clothing chain Goody’s Family Clothing announced last week that it was liquidating. And Bebe Stores, which suffered a 20 percent drop in same-store sales in December and cut its fiscal second-quarter outlook, said Monday that its chief executive has resigned.