Australians have been bombarded with cost-of-living pressures from many sides. From essentials – at the supermarket and the petrol pump, in the mortgage and in the power bills – to the not-so-essentials, such as the local café, the fashion boutique, the travel agent and the new car dealer.
Even if you’ve got cash to splash (remember, less than half of Australian households have a mortgage), we’re being bombarded with headlines that probably make you think twice about parting with your hard-earned dollars.
All that combines to shift the mindset of consumers to what we call ‘mindful consumption’. This trend actually began during the lockdown phases of Covid-19 and, for many, it has progressed to become a manic search for value and bargains. Call it the shift to thrift, if you will.
Retailers ignore this heightened awareness of ‘the value of a dollar’ at their peril. Shoppers will go elsewhere to get more for their money if retailers don’t come to the party. Case in point, the Salvos are expanding their store footprint and getting into online. They see the opportunity, plain and simple.
One of the smart ways retailers are dealing with this move to mindful consumption is by giving customers choice. Namely, choices on the price versus quality scale or, as some call it, the sliding value equation.
That means offering a range of price points within the same product category. To do it, you need to stock a ‘base offer’: a brand or product that is fit for purpose but is basic with no bells and whistles. Then also have a middle-of-the-road option that costs a bit more and has something some customers will see the value in paying more to have. That could be a heavier thread count, longer warranty, automatic switch off, or 50 per cent more battery life. You get the drift.
Finally, for the customers who can and want to proceed with buying the best, like it was five years ago, carry a product or brand that fits the bill. But be smart and carry less stock of these.
That’s a long explanation of what Myer CEO John King calls the ‘good, better, best’ model.
It worked for the House of Fraser in the UK when King was running the show over there during the GFC, and it looks to be working for Myer. Last month, the department store reported its highest interim profit since 2014.
If, like King, you’re seeing parallels between the current economic situation and the GFC, it might be worth giving this approach a shot.
To pull it off, you need to give a lot of thought to merchandising and pricing. You’ll probably have to adjust margins to implement this model effectively, and it’s likely that the ‘better’ offer will end up being the largest seller, so plan your orders accordingly. Tread carefully because markdowns will bite hard if you misjudge stock weights.
It’s not one-size-fits-all
The good, better, best model is something of a departure from the ‘everyday low price’ approach, so we wouldn’t expect to see retailers like Bunnings and Big W changing tack. If you have the flexibility to review your strategy, bear in mind that turning slow-moving stock into cash quickly is a must in today’s uncertain times. And you’ll need a pre-planned mechanism to achieve that. Themed sales and clearances will do the trick here and, when used correctly, can add to the perception of providing value to your customers.
If you’re looking to capture more market share, and what retailer isn’t, now would be the ideal time to do it. You could even expand your customer base by attracting segments you haven’t catered to before. Once you get them in the door, take the opportunity to build customer loyalty and repeat business and they’ll keep coming back. Smart retailers can grow in these times with some good planning and attention to the finer execution details.
With house prices having potentially hit rock bottom, the Reserve Bank giving homeowners a break on interest rates and inflation starting to settle down, we might be through the worst of this inflation cycle. But the effects on people’s wallets will be felt for months to come. And we predict the influence of the mindful consumer will last for a long period of time. Retailers that continue to read the room will be in a good position to handle whatever comes at us next.