The nation’s retailers have begun to embrace the new cost-conscious consumer, developing products they can sell at lower prices without driving themselves out of business in the post-splurge era.
Starbucks dropped the price of a medium iced coffee last week to just under $2. American Eagle cut out the ribbon from the inside waistband of its khakis and lowered the cost. Pottery Barn launched a new “Comfort Collection” sofa that starts at $999.99, which is $300 less than the “Basic Collection” sofa. Even Rock & Republic, whose trendy denim has graced the backsides of celebrities such as Victoria Beckham, recently unveiled a line of recessionista jeans selling for $128, a 29 percent reduction.
Retailers have absorbed the lessons of a ruinous holiday season. Caught with shelves full of unsold merchandise, they slashed prices to draw in shoppers. But the strategy was unsustainable: It decimated profits and resulted in massive layoffs, killing off a number of chains, including Circuit City. Serving recession-era shoppers, retailers realized, would require a long-term strategy featuring lower prices.
“What we have is retailers reacting to a very low-appetite consumer and a consumer that has been now taught to wait,” said Michael Silverstein, senior partner at Boston Consulting Group.
The new consumer has curtailed spending and increased savings to 10-year highs. Smaller houses are newly coveted, bringing the average size of a new home down in 2008 for the first time in 35 years, according to the National Association of Home Builders. Fancy dinners out have been scaled back, prompting restaurants to reconfigure their menus. A recent survey by Boston Consulting Group found that 48 percent of consumers said they traded down on products last year, an increase from 41 percent in 2007. The number of shoppers trading up fell by 6 percentage points.
Retailers reassess their prices and their assortment of products every season. But this year, they are being particularly conservative. They are less willing to take risks on trendy, unproven merchandise and are stocking tried-and-true customer favorites. They have been reducing inventories; import cargo fell to the lowest level in seven years in February, according to an industry trade group. Many are putting more emphasis on lowering prices on the cheapest version of their products.