August 2008 Big Grower

Retailers Rethink Their Promotional Messages Toward Strapped Consumers By Visions Group

Rather than cutting spending and reducing budgets, some retailers are expanding their promotional efforts in an attempt to stand out from the crowd, grab market share and emerge from the economy’s slump in better shape than their rivals.

Their new strategies are based partly on the premise that shoppers are basically creatures of habit and the economy’s doldrums offer an opportunity to possibly change some of those habits as shoppers look for ways to economize. A recent study by retail marketing firm TNS Retail Forward suggests that potentially 20 percent of the nation’s consumers will change where they shop because of economic worries. Additionally, Wall Street tends to put less pressure on retailers to perform in a weak economy, which can give them more room to finance strategic investments. Here’s a look at what’s happening at some of the nation’s largest retailers:

Aldi, a no-frills, deep-discount grocer with more than 900 stores in the United States, used to shun TV ads. They recently ran a series of national commercials stressing their low prices on private-label products. The campaign’s slogan was “Shop Aldi Smart.” A recent survey by Retail Forward suggested that consumers were spending 25 percent more at deep discounters compared with a year earlier.

Home Depot, industry leader in the home improvement category, has moved away from costly promotions such as heavy discounting and is returning to an emphasis on everyday value. It is enhancing financial performance-based incentives for employees and managers. The chain plans to spend more than $3 billion in the next two years on improving customer service and store maintenance. Home Depot will also create a new centralized distribution system in a bid to regain market share.

Lowe’s hasn’t backed off its heavy promotional spending in an attempt to lure customers into its stores with “project starter” coupons providing discounts that increase with the value of the purchase. Last quarter, Lowe’s gained share in all but four product categories, while Home Depot gained or held share in only half its merchandise areas.

Best Buy is taking aim at its weaker rivals in the electronics field by offering no-interest payment plans for big-ticket items. Both sales and market share have increased since this addition. Best Buy is also rapidly expanding sales of mobile phones through the use of in-store kiosks that place an increased emphasis on the product while providing an enhanced level of customer service for those purchases. Same-store sales of mobile phones increased 50 percent with the opening of the kiosks. They are also playing offense against local companies with an increased emphasis on their Geek Squad services.

Wal-Mart, which had chased after upscale clients in recent years, has now stepped up advertising to promote its low-price offerings and reinforce its discount image. It spent $107 million in the first quarter, up from $75 million, to promote the “Save More, Live Better” campaign. The world’s largest retailer also offered to cash shoppers’ tax-rebate checks for no fee and expanded its $4 generic prescription plan. In the quarter ending April 30, same-store sales open at least a year rose by 2.9 percent.

In general, ad spending is projected to grow just 2 percent for 2008, off from the original projection of 4 percent. The worsening economic climate is certainly restricting expansion of consumers’ disposable income. Still, the opportunity to expand sales and market share exists for astute retailers who give existing and potential customers a compelling reason to visit their locations and shop to “stretch” their purchasing dollars.