Author: Dr. Ralf Deckers, Head of Department at IFH KÖLN, the Cologne-based institute for research into the retail industry
How retailers can emerge from the crisis with new approaches and fresh momentum.
According to the German Language Society (GfdS) in Wiesbaden, “crisis mode” is the word of the year 2023. And let’s be honest, it could well be the word of the year for 2024, too. Prices are continuing to rise, and consumers are feeling the pressure: in their everyday shopping, when they make purchases online, or when they go to a restaurant. They look at the bill in amazement and say to themselves: “Surely I didn’t buy that much!”
In addition, there are political developments that are unsettling. The controversy surrounding Germany’s new heating system legislation and the demands it will impose on homeowners. The collapse of the 2023 federal budget and the challenging budget for 2024. Any sense of boom and optimism seem to have somehow fizzled out. Uncertainty is growing as to the level of costs everyone will have to face.
The daily shopping experience and the climate of uncertainty have their consequences, which is not surprising. More and more people are economising, doing their shopping at discount stores, switching to cheaper own-brand products and denying themselves the treats they might buy on impulse. A further sizable group are delaying major purchases or digging into their savings. All in all, three quarters of the population are engaged in comparing prices and cutting down on their spending. This has huge implications.
It’s no coincidence that second-hand products are currently experiencing a boom. The fact that used goods are cheaper naturally plays a role in this, but it’s only part of the story. The other factor is a change in attitudes. People prefer to use terms such as “vintage” or “preloved”, which sound so much better than “second-hand”. And these terms hint at individuality, combined with little stories about the background and previous owner of the goods. In other words, we’re not simply buying cheap, we’re buying things which match our own, highly individual lifestyle. And the great thing about it is that we’re doing something positive for the environment at the same time.
However, the crisis also brings with it new opportunities for retailers. This may sound like something from a motivational seminar or consultant speak, but please read on. Let’s take a look at where retailers can and must make a start:
- Retailers need to show convincingly that their prices can be trusted. Many consumers suspect that some manufacturers are using the crisis as an excuse to raise their prices – even though there may in fact be no justification for this in the form of higher raw-material prices, more expensive primary products or more costly supply chains. These manufacturers are simply taking advantage of the current situation. Retailers need to communicate to shoppers that they don’t belong to the category of those who are prepared to exploit them. The methods for this are well known and effective. Providing a best-price guarantee, for example, goes down well with consumers and gives them the confidence to make purchases.
- Retailers need to respond to money-saving by consumers and overcome their reluctance to spend. The offer of a less expensive brand helps here. If lots of people switch to the lower-shelf area, that’s where the lower-priced range should already be positioned. And those shoppers who are still hesitant can be lured in with guarantees and extra services. A money-back guarantee, for example, will persuade people to make a purchase in the first place. They can then always return the goods (but usually don’t.) An extended warranty offers the prospect of a longer service life, while free repair services enhance the overall offer and provide the security of continued use.
- Retailers need to use the power of communications. One thing is certain: in comparison with other channels for communicating offers, whether online or offline, the brochure – and at present the printed brochure in particular – has the greatest impact on sales. The brochure is highly effective when it comes to boosting footfall and increasing the size of shopping baskets. It is precisely this effectiveness that is required at the moment, but it’s the full range of communications that makes the final impact. The online presence, price comparison sites and the in-store display of offers – to name just a few relevant channels – also play a useful role. However, every retailer needs to take an individual approach and find the right ways to advertise offers to the right target group at the right time. And this is becoming increasingly easy at a time when we have more and more data about our customers at our disposal.
- Retailers need to take advantage of the preloved boom. They need to recognise the sales opportunity offered by the second-hand business, which is not to be neglected in times of purchasing restraint and negative growth. Retailers should also be aware of the image gain that the preloved business promotes, because it enables them to position themselves as “sustainable”. Even in difficult times the topic of sustainability has not completely disappeared from the agenda. True, it has taken a back seat and the willingness to pay more for sustainable products seems to have been curbed (for the time being). However, consumers are telling us that they will be ready to spend more on sustainability again as soon as the crisis is over. In other words, a good reason to get involved here. Even if day-to-day business often takes top priority, a focus on sustainability means that we are investing in the future.
“Crisis mode” is the word of the year 2023 – and rightly so, as our research findings on the mood and purchasing behaviour of consumers in Germany indicate. However, there are at the same time strategies and areas of opportunity that make successful business possible. This is also something we have established, so let’s take full advantage of them and work towards making 2024 the “opportunity mode” year.