Saturday, June 20, 2009

The Rose-Tinted Recession

One of the happy consequences of the recession, and the decrease in the demand for durable goods, is how it forces businesses to offer better for less.

The New York Times reports that major retailers are poised to offer high-end consumer goods at mid-range prices. This is a trend that Target popularized in the 1990s, by selling trendy wares by the likes of Michael Graves and Todd Oldham, at off-brand prices. Now luxury chains are following suit:
At high-end stores, the era of ever-escalating prices on luxury goods appears to be over. In the future, consumers will still be able to buy chic brand names, but at a wider range of prices.
High-end stores like Neiman Marcus, Saks and Coach will offer more midpriced merchandise. Many chains, including Wal-Mart, will carry less inventory and fewer brands. The likes of Sears and J. C. Penney will put self-service computers in stores so customers can browse collections or buy out-of-stock items. And retailers of all stripes will offer more exclusive merchandise and more attentive customer service.
Prices will also be lower at some “affordable luxury” chains, like Coach, which is increasing the proportion of handbags it sells for less than $300. About 50 percent of the company’s handbags will cost $200 to $300, in contrast to about 30 percent of handbags last year.
Consumers will also see even more of the exclusive collaborations between retailers and prominent designers that are so prevalent today. That will help distinguish stores as well as avoid price wars because the same items will not be sold at multiple chains.
This illustrates the genius of the profit motive, coupled with the prospect of bankruptcy. Even during boom times, capitalism forces producers to innovate to survive. This imperative is only amplified during a downturn. (Especially when a bailout is not an option.)
Economists and analysts forecast that it will take up to 10 years to return to 2007 levels of consumer spending — which makes now a good time for retailers to re-imagine the future. Paul A. Laudicina, chairman and managing officer of A. T. Kearney, the management consulting firm, noted that major consumer innovations like Neoprene and Teflon came out of the Depression.
The NYT article posits that consumers will also encounter fewer choices on the shelves:

Another change is that consumers will have fewer brands from which to choose. Wal-Mart, Target, Home Depot, and PetSmart are just a few of the chains winnowing their brands. As Home Depot’s executive vice president for merchandising, Craig Menear, put it: consumers are “time-starved” and “looking for simplification in the entire shopping experience.”

That may delight minimalists, because it will be easier to find items on the shelves. But it also limits choice.
Does it? I think this merely reflects the new reality of retailing: brick-and-mortar firms have already been forced to pare down their inventories, ceding variety to retailers like (and the brick-and-mortars' own websites). This is the best-of-both-worlds scenario outlined in Chris Anderson's book, The Long Tail. The brick-and-mortar stores focus on popular goods, while online retailers play to the niche.

The article warns that consumers may consequently face bare shelves:

Another potential drawback for consumers is that stores may run out of stock more quickly than in the past because, as Mr. Lundgren of Macy’s explained, “retailers learned that you can’t get out of the merchandise that you ordered months before.”

“Instead,” he said, “you’re more likely to see retailers ordering fewer of each individual size and taking that risk that they’ll sell out and not capture every sale, rather than the risk of having too much inventory left over to mark down.”
This seems unlikely. Many retailers already practice the just-in-time inventory strategy, which reduces the lag between the sale of good and the shipment of its replacement. This is the business model that made Wal-Mart the world's most successful retailer.

Yes, things are dark. But light can still shine on the deepest economic abyss.