November 2008 Big Grower

Food For Thought By Visions Group

As the crisis in the financial markets spreads early this fall, some retailers panicked and offered greater discounts than they did at the same time a year ago. The promotions, however, did little to convince wary consumers to open their wallets.

Comp sales for the month of September actually declined for a number of large retailers (see chart at right). This fosters a poor prediction for the upcoming holiday season which is extremely important for all retailers. Most marketers had been planning conservatively for seasonal hiring and increased inventory levels, but the declining numbers for September may result in further cutbacks as retailers scramble to preserve margins and profits. The exceptions to this prediction include Wal-Mart, Costco and BJ’s Wholesale Club, which are expected to post sales gains.

Department stores are expected to get hit the hardest, with an average sales decline of 6.1 percent. Spending on discretionary items and apparel appears to be declining at a greater rate this fall than during the summer. The increased discounting does not seem to be luring customers into stores. Consumers appear to be becoming hardened to retail claims of “final sale” and “biggest sale of the season”: When there is a new “last-minute sale” every week, consumers begin to feel they are being scammed and become disinterested.

How Do They Respond?

Retailers’ reactions to consumer indifference have varied. Wal-Mart has already cut prices for Christmas on toys. Target is attempting to focus on the value aspect of their brand promise “Expect More, Pay Less.” To gain the attention of wary consumers, prices may have to go even lower. At warehouse club Costco, sales of nondiscretionary items like food and gasoline are up, while sales of discretionary items like furniture, apparel and electronics have declined. Consumers certainly are delaying or eliminating purchases of items deemed nonessential.

Starbucks Extends Workers’ Shifts

In a bid to reduce labor costs, improve sales and foster familiarity between customers and employees, Starbucks is changing its scheduling system so that fewer employees will work longer hours. The program was introduced in October as part of a broader effort to revive the company and profits amid a sales slump that has resulted in store closings. “The customers favorite sales experience is when the people behind the counter know them,” said Craig Russell, vice president for U.S. store services. Service should also be faster because employees will already know exactly what regulars want. The move should also address one of the major complaints of hourly employees, that they are unable to secure enough hours to provide a suitable wage. Starbucks will now have a non-management, full-time job description that aims to give these employees at least 32 hours weekly. In test markets, workers liked the program because it eventually gave them more regular work schedules. The labor savings should come from lower turnover rates and decreased worker training costs.

Maintaining Morale and Productivity Amid a Financial Slowdown

Just like many of their employees, business owners and managers are feeling the pressure of the volatile U.S. economy. The crisis is testing their ability to maintain productivity and morale among all employee levels. The pressures are universal, across most types and sizes of businesses.

Managers report the symptoms of the issue are manifested in employees spending more time online, making more personal phone calls and discussing the fate of their jobs and the company with coworkers. Tardiness and absenteeism are increasing. Job security and the security of retirement benefits have risen to the top of employee concerns. As a result, many mangers are having a difficult time performing their own jobs and handling their personal stress. Customers can pose additional challenges as they begin to question the abilities of an organization and its employees to provide goods and services that were previously considered a part of the normal course of business.

What You Can Do

Employee-assistance firms suggest the following actions and attitudes to maintain productivity, buoy worker spirits and minimize employee stress:

• Be candid. Speak as honestly as possible about a company’s prospects, whether good or bad. False rumors can spread fear and hurt morale.
• Communicate often. Offer frequent updates to suppress rumors. Detail any layoffs in advance and what support will be extended to laid-off employees. Project further cuts, and communicate why these may be necessary and what actions will avoid additional employee reductions. Frequent, objective and honest communication is very important.
• Stick to a routine. Maintaining normal work habits avoids provoking fear. Be visible during stressful times. Employees look up to managers for cues on how things are going.
• Moderate discussions. Set aside time for employees to express emotions. Institute an “open door” policy with all levels of management.
• Be reasonable. Don’t expect 100 percent focus on work, but stress the need to stay productive. Reinforce that the best way to safeguard jobs and support company health is to stay productive and focus on providing the goods, services and superior levels of customer service to satisfy client’s needs.
• Offer outside help. Invite expert speakers, offer financial seminars and remind workers of support services the company provides.
• A professional, well-staffed human resources department can play an active and important role in minimizing fears and stress for workers during uncertain times, while stabilizing the prospects for the company’s future.

Will Skeptical Consumers Still Pay Big $$$ for Premium Products?

Gillette has built a successful business on a simple and often-imitated business model: Sell an advanced, improved shaver at a very low price, then convince consumers to pay prices that gradually increase for replacement blades. The question now is, as the economy moves closer to full-blown recession, will consumers still spend $25 on a pack of replacement blades for their newest high-tech razor? Gillette is hoping that new “messaging” will sway those who are on the fence.

P&G, owners of the Gillette brand, maintain that shavers will perceive a difference in their new five-blade razor and will be willing to pay more for replacement cartridges. “During economic slowdowns, men will make choices with their wallet, but we don’t see them wanting to compromise their shaving,” says Chip Bergh, group president of global personal care at P&G. “Instead, maybe they trade from a large count [of cartridges] to a small count or extend their shave.”

The last 12 months have not been stellar in the cartridge replacement business: Unit sales of Gillette blades have fallen every month, and recent monthly declines are approaching 10 percent.

P&G maintains that the new five-bladed razors have increased market share to 36 percent and attributes the sales decline to the older models being cannibalized by the new razor. Highlighting the value of the new five-blade razor is a change in direction for the brand, which previously tried to convince shavers of its superior performance. Recent new ads tout “Five is Better Than Three” in an effort to leverage the perceived added value of the new product. In an effort to convert consumers from the previous three-blade P&G razor (less expensive) to the new P&G five-blade razor (more costly), P&G has aired commercials showing golf, tennis and baseball stars knocking a three-blade razor out of men’s hands while the narrator intones, “Sometimes you need a little push to let go of your three-bladed razor.”

In Our Industry

So the question arises, will consumers vote this spring at the big boxes with their wallets when it comes to ornamental plant purchases? Will all the live goods in the garden center be perceived as premium and discretionary? Or will only the more costly, “branded” products be considered premium and discretionary? Can the consumer be convinced that there is value in branded and/or generic ornamental plants?

The industry has always believed that our live-goods offerings were insulated from economic issues and perceived by most consumers as necessary, not discretionary. The industry has always touted that during periods of economic uncertainty, consumers cut back on leisure travel and activities, spend more time at home and increase spending to improve and make the home environment more aesthetic. Spring 2009 may finally prove or disprove this theory.