Ninth semi-annual shopping study published - How America Shops 2004 "PUSHING BACK" - WSL Strategic Retail www.WSLStrategicRetail.com - Wendy Liebmann and Candace Corlett, Principals

Furniture World Magazine

THE NEW NORMAL: In recent years American shoppers have confronted turmoil that has impacted virtually every aspect of their lives. There was the free fall of the US stock market that dramatically impacted savings, investments and retirement funds; increased unemployment; corporate and religious scandals; the attacks of September 11 and their aftermath. All this in only four years. Was it any wonder that Americans applied the breaks to shopping; that they were no longer willing or able to continue the excessive consumption that drove the latter half of the 1990s? Four years later, they are beginning to shop again but_ within a new set of parameters, with new expectations, and a new yardstick that defines what is acceptable and what is not. Americans are moving into a post Wal-Mart, post 9/11, post recession world. A world built on more than two decades of discount retailing that has re-defined "value." A world of reduced expectations. A New Normal. The New Normal is clearly evident in the way consumers shop today. It combines a willingness to spend but cautiously, with a desire to simplify their lives and enhance their lives. All this impacts shopping. Prudent Spending + Simplification + Emotional Connection = The New Normal. Prudent spending is indispensable in this New Normal. It's about making choices, recognizing they cannot have it all, and so "Pushing Back." Compared to shoppers in 2002, they are spending more on Leading Indicator Segments such as Education, Savings/Investments and Shopping. However, they are spending less on more self-indulgent, frivolous categories, such as Leisure Travel, Entertainment, and "myself." "Pushing Back" manifests itself in getting more under one roof, shopping more at places where they can get the best value, and the most done, without giving up the excitement and thrill of the hunt (for the deal or what's new). A sample of the "Pushing Back" statistics: • 59 percent said, "Before I buy something now, I stop to ask myself, 'Is this a smart use of my money?'" • 57 percent "Shop differently now to help simplify my life." • 50 percent "Like to spend time browsing." Consumers are shopping at more places, more often than they did in 2002 -- more akin to how they shopped in 2000. In fact, what is evident throughout this 2004 study is that, in many ways, 2002 was a shopping aberration, a side-step. It reflected the emotional and financial turmoil Americans faced at the time. Shopping reached new lows. With the passing of time, and improvement in the US economy, consumers are regaining some of their confidence. The numbers suggest they are shopping more as they did in 2000 but -- and it's a very big but -- their approach to shopping is different. They are now shopping at 2.6 outlets per week, up from 1.9 outlets in 2002, close to the 2000 level (2.9). However, the key reasons consumers choose to shop where they do are all equally important establish their shopping mantra for the New Normal. - "Always in stock/have what I want" "Convenient location" "Lower prices" - In 2002, shoppers were driven more by convenience factors than any others. Today, they are more inclined to demand it all. Therefore, their Shopping Mantra What they want, Where they want it, at Low prices. RETAILERS ON THE RISE in the NEW NORMAL: Supersize or specialize. Retail success demands relevance to shoppers in a world where success is based on either "supersizing" or "specializing" the offering. Retailers that help shoppers to be economically cautious, to simplify their lives and provide an emotional connection are the winners in the New Normal. Most obvious: supercenters, dollar stores, warehouse clubs, and the Internet. The rise in importance of each of these formats has been dramatic since 2000. The Supercenter is fast becoming the premier retail format in the US. In 2004, 63% of American women shopped a supercenter in the last 90 days, up from 32% in 2000. This format enables shoppers regardless of age or income level to save money, do more in one shopping trip, and enjoy the opportunity to browse. Dollar Stores, at the other end of the size spectrum, are also redefining the shopping landscape by meeting shopper needs for cautious spending, convenience and the thrill of the hunt. 62 percent of women shopped at dollar stores in the last three months, up significantly from 56 percent in 2002; and women of all income levels are discovering dollar stores as these retailers appear in more communities. Dollar stores are shifting the retail landscape for a wide range of categories from greeting cards to beauty care. Warehouse Clubs like the supercenter, provide what shoppers want today: value, ability to get a lot done on one trip, and the thrill of browsing. 52 percent shopped there in the last 90 days, up from 35 percent in 2000 and 47 percent in 2002. The Internet meets the needs of the New Normal. 13 percent of women now shop the Internet each week, up from 5 percent in 2002. That's more than shop specialty stores and drug stores in a week. (WOW!) RETAILERS AT RISK in the NEW NORMAL: Since the mid-90s in HOW AMERICA SHOPS® we have noted that supermarkets, department stores and drug stores were at risk -- or on the brink. Since 2000, fewer consumers have shopped these channels weekly, as newer more relevant places have come to serve their needs. The share of shopper is still significantly less than in 2000 for each of these three channels. In addition, supermarkets and department stores had the largest net declines in shopping compared to a year ago of all retail channels. Department stores are losing consumers for core categories, including clothes, fashion accessories, skin care, and home decorating. While 42 percent still view department stores as the primary place to buy their clothes, this is a decline from 55 percent in 2000. It is driven by 18-34 year old shoppers who are shifting to specialty stores. One bright spot, department stores, have held their share of cosmetics shoppers since 2000. For drug stores, the business has stabilized across most of their core categories and core shoppers. The bleeding has stopped. The challenge, however, is how to increase share of shopper and not remain static in this "supersized" world. LEADING INDICATOR CATEGORIES REVEAL THE SHOPPER MINDSET: The 12 HOW AMERICA SHOPS® Leading Indicator Categories have become reliable predictors of shoppers' mood and future spending. The good news is, compared to a year ago, shoppers spent more on 7 of the 12 categories -- for the most part, categories they consider essentials in this New Normal: pet supplies, food, hair care, prescription drugs and clothing. They purchased less of categories that were either not as essential, more frivolous, or less innovative: computers/software, home decorating, perfume/fragranced body, cosmetics and fashion accessories. Even more than what they bought -- where they bought it and where they did not reflects the shoppers' new mantra. They are buying in more places that offer low prices with the right selection. In keeping with the new shopper mantra, "What I want, Where I want it, at Low price" there is an increasing level of shopper fragmentation. That is, consumers are shopping more different outlets than ever before as they search for satisfaction. This is especially true in beauty care, clothing and greeting cards. There is more channel shifting, splintering shopping, as shoppers search for, and find, products at almost any place that catches their eye. SHOPPER SATISFACTION -- STILL A CHALLENGE: Overall satisfaction with retailers, in general, continues to be mediocre. When asked how much retailers pleased them, shoppers gave an average rating of 65 out of 100, slightly lower than the 67 in 2002. What creates satisfaction -- the clues to "pleasing," to loyalty-building -- have not changed since 2002. It is all about the integration of the functional with the emotional. What channel does satisfy shoppers best? The mass merchandiser leads the pack, with nearly half of all women choosing it as their "most favorite" place to shop. It rates even better than it did in 2002, with fewer naysayers. CONCLUSIONS: If the economy is so much better, why are shoppers holding back? The reality is that while economic indicators are improving, the majority of American shoppers are uncertain about when and how the recovery will impact them -- if it will impact them. As a result, they are cautious and discriminating about when and how they spend, on what and where. Nothing captures their mindset better than the fact that six out of 10 shoppers -- women and men alike, regardless of how wealthy or not -- say "Before I buy something now, I stop to ask myself, 'Is this smart use of my money?'" This pause, this caution, is reflected in everything they do. That's why shoppers are holding back -- and pushing back. They not only expect the best price before they buy, but they expect to get it shopping in the most efficient manner, so they can ease their load in life - economic and emotional. And yet it is even more complicated than that, for these are consumers who, over the last six years, have come to see shopping as more than necessity. They expect shopping to provide emotional connection, excitement, thrill in their everyday lives. The next big shift in shopping is underway_and the retail winners are those that deliver the mantra of the New Normal with equal emphasis on What I want, Where I want it, at Low price.