Five Rules for Retailing in a Recession

In tough times, many retailers focus on their most loyal customers. That seems sensible enough. But, paradoxically, your most loyal customers are not your best source of revenue growth in a recession. You're already collecting most of the money they're spending. If they suddenly spend 25% less, most of that will come out of what they spend in your stores. It's not likely that you'll pry away customers who are fiercely loyal to other retailers either. Your best opportunity lies with "switchers" - the people who spend money both in your shops and elsewhere. If you collect, say, only 20% of what they're spending today but can increase that to 30%, you'll still realize a net gain even if their total spending drops by 25%. Drawing on a study of more than 50 major U.S.-based retailers and over 20 years of global consulting experience, consultants Favaro, Romberger, and Meer set out five operating rules to help retail executives determine where to direct recession-squeezed resources for the biggest return. These rules basically boil down to: (1) Identify the people who are shopping both in your stores and in others'. (2) Figure out what they're buying elsewhere (or want and can't find at all) and adjust your offer so you can give it to them. (3) Analyze which of your costs contribute to producing the benefits the switchers want, then spend more on those activities and less on the ones that don't matter to them. (4) Organize your efforts efficiently by grouping your stores into clusters based on different populations of switchers. And, finally, (5) focus your customer research, merchandise-planning, performance management, and strategic-planning processes on the switchers. By following those rules, struggling retailers will discover that they have a larger universe of growth opportunities than they might think.

• Recessions
• Marketing channels
• Customer retention