Consumers' Shopping Patterns
for the Current Holiday Season

The holiday shopping season is winding down, and we asked the experts to analyze where consumers spent their cash. Northeastern University professor Tony Gao gave IAB the lowdown on how shoppers "spent" their holidays!

New Holiday Shopping Patterns…and Implications for the Intimate Apparel Retailer
By Tony Gao, Assistant Professor of Marketing, Northeastern University

Retailers of intimate apparel and accessories have been through a tough holiday selling season this winter. Several changes in the U.S. economic situation over the past year have influenced American consumers’ shopping patterns and put the growth of consumer spending in check.

The Bad News

First, the increasingly tenuous housing market has worsened the financial situations of some consumers, which in turn has affected their buying power. Along the same lines, as banks have tightened their credit lending rules, it has become more difficult for all consumers to borrow money to finance holiday gift purchases (among other things).

Second, the combination of rising gasoline, oil, and food prices have eroded Americans’ buying power, especially for non-necessity and imported products. Finally, media buzz has made consumers acutely aware of both of these conditions. As a result, gift givers have been exhibiting more prudent spending habits as a result of the perceived economic “downturn.”

While all of these factors have affected the prices of products across the board, they have particularly impacted non-necessity purchases. Unfortunately, intimate apparel retailers fall in the most affected category, to varying degrees.

The Good News
Fortunately, there are two positive forces that have been at work in the marketplace recently: the Internet and the current exchange rate. Although these have not necessarily affected spending as a whole, they have favorably impacted shopping habits across certain channels and products.

As mentioned earlier, the combination of adverse changes in the market and the negative news surrounding them has significantly spurred consumers’ bargain-hunting mentality. While that may not seem like good news for retail, it’s created a comparison shopping boom. There’s no better way to look for a deal than online; it’s easy, thorough, and convenient. With those perks at hand (or fingertip, as the case may be), Internet purchases have become more attractive than ever. A recent report from comScore noted an 18 percent increase in e-tailing between November 1 and December 7 (over the same time period in 2006).

The declining dollar (against the Euro, Pound, Canadian dollar, and other foreign currencies) has made certain imports more expensive for domestic consumers. As a result, Americans have recently begun favoring comparable products made locally. In addition, foreign shoppers have become interested in buying from the U.S., cashing in on high-quality merchandise made “less expensive”—by favorable exchange rates, that is.

What It All Means To You

The good and the bad don’t necessarily need to get ugly. There are a few ways that intimate apparel retailers can weather the ups and downs of this holiday season.

• Resist the temptation to use frequent, prolonged, or deep discounts as a primary means to elicit sales. While forecasts for the 2007 holiday season by National Retail Foundation suggest moderate but continued growth in sales (an approximate 4 percent increase over 2006), you shouldn’t rely solely on sales performance. Remember that gross and net margins are equally important, if not more so, than revenue alone.
• As multi-channel retailing takes on a new meaning (and importance) this holiday season, gear up for increased traffic and activity on your website—especially if you have a small boutique. If you’re an independent retailer who has been hesitant about setting up an online purchasing option for your web-savvy customers, this is the time to make the move. A look at industry trends shows that establishing a full-blown online presence might no longer be a choice; it is rapidly turning into a tool necessary for a store’s survival.
• Find ways to expand from brick-and-mortar to non-store formats, such as catalog and online sales. As long as the dollar continues to soften against foreign currencies, there are benefits to tailoring your offerings to serve international clientele. Whether your business is large or small, seek to expand your e-commerce presence wherever there are strong currency markets. Even with the added expenses, “going global” online is still a relatively inexpensive way to grow—especially compared to the financial commitment needed to open physical stores overseas.
• If you have a physical location near any sort of tourist destination, be prepared to cater to international patrons who will be eager to enjoy the windfall of their home currency’s increased buying power. In order to customize your services to a new audience, you may consider adjusting the merchandise you offer (adding things like unique, local gift items), varying the sales assistance you have on hand (by hiring bilingual sales reps or diverse seasonal help), providing signage in other languages or accepting other currencies, at current exchange rates, and/or offering low cost shipping services to international addresses.
• If promotions or discounts are unavoidable, use a targeted strategy to conduct sales that attract the most likely purchasers. While having more bodies in the store is generally a good thing, the motivation behind your traffic is just as important to note. Some shoppers are only attracted by the deals; they wouldn’t come to you if not for the promotions. Other customers may come to buy from you regardless of your promotions, but their trip can be prompted by a “good deal.” There are those, though, who are unaffected by sales entirely. By keeping a transactional database throughout the year, you will be able to identify regular clients who are “markdown motivated.” When you do decide to discount, you can send out marketing pieces to those specific customers (that is, the second of the above three groups).
• Finally, look beyond the holidays. As important as gift-giving season may be, December is not the end all and be all. Take a longer view. This may be a good time to observe, endure, and learn. When sales are slow, try to look on the bright side. You have a unique opportunity to remember why you went in to business in the first place, and a chance to reevaluate what specific benefits you have to offer your core customers. It’s the perfect time to work on some great New Year’s resolutions. (For suggestions, see numbers one through five.)