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Spring 2009 A Recession is a Terrible Thing to Waste

Although it might be hard to watch the news sometimes, it helps to remember that in many ways these days are no different than recessions we’ve faced before (and likely will again). In fact, as more-experienced retailers know, some shifts in consumer spending during a recession can be incredibly predictable. So much so that adjusting your products, selling techniques and marketing to cater to the consumer’s new needs and wants (yes, the consumer still has wants) can be more straightforward than retailers who haven’t been through a recession or two might assume. At the same time, it’s easy to look at trends past or present and over-generalize when attempting to forecast consumer buying patterns, so you end up positioning yourself in the wrong place with the right intentions.

Just because consumers are focused like laser-beams on value (which they are) doesn’t mean cubic zirconia sales are up (they’re not). Just because value became the most-used word in the retail industry last holiday season, doesn’t mean all discounters cleaned up (ask Target). Spotting the hidden opportunities in a recession can be made harder by the media’s penchant for inflammatory headlines that score ratings. But by keeping a cool head and paying close attention to the retail details beyond the headlines, you can get a fairly clear picture of what consumers are thinking. And what they’re thinking leads directly to what they’re buying. Add to that a dash of historical information that reveals how consumers have behaved when faced with similar circumstances in the past, and “hidden” gems of knowledge become opportunities you can seize. Today.

Cosmetics Retailers Sitting Pretty

Color cosmetics were one of the bright spots last year, up 4.4 percent over 2007 according to ACNeilson. But lipstick sales were up a whopping 40 percent. That trend was known as “The Lipstick Effect” when it surfaced during the Depression. Consumer experts theorize that because lipsticks are low-cost items that give buyers an instant emotional lift, sales stay relatively steady despite economic downturns. Along the same lines, anti-wrinkle and anti-aging products are cashing in as more consumers seek cheaper alternatives than surgical facelifts and other touchups. Especially in a tight economy, skincare items are appreciated as gifts, reflected in the 11 percent rise in skincare gift set sales from November ’07 to November ’08 according to market researcher NPD Group.

Yet another recent trend also giving cosmetics retailers a boost these days is mineral makeup, which has taken off in the last few years as more women became concerned about harsh or harmful ingredients in mass-market makeup lines and stepped up their search for natural alternatives. The mineral-makeup market had a mere $5.4 million in sales in 2005, but jumped to more than $149 million in 2007, the last figures available from Information Resources, Inc.. With total cosmetics sales for 2008 estimated at $3 billion by ACNielsen, that’s a lot of potential for organic growth in the mineral makeup category.

Completing the Makeover… Hair, Nails and Eyes

Grooming products sales rose 15 percent and shampoo sales rose 18 percent from November ’07 to November ’08, NPD Group says. Specialty retailers who sell hair extensions, curling/straightening irons and a range of hair accessories are benefiting from the consumers trading down to lower cost hair-care services and at-home kits that sell far below salon prices. Similarly, nail-care retailers are benefiting from the consumer’s shift away from spa or salon manicures and pedicures, snapping up products they can use at home instead. Eyelash extensions and eyebrow threading, also salon or spa services, have also migrated to the mall with success. The bottom line for the specialty retail beauty biz in today’s economic environment? Retailers who can deliver brilliant beauty for less will be looking good in 2009.

Green Market to Double to $400 Billion by 2010

The green market has undergone an undeniable, tectonic shift in the last few years in particular, prompted in large part by Al Gore’s documentary-making skills. Not only are malls nationwide rushing to replace old money-sucking energy systems with solar rooftop arrays, but leasing managers are actively searching for specialty retailers with green lines who want to profit from a growing market that goes well beyond selling solar handbags and such. Products that focus on lifestyles of health and sustainability, or LOHAS products, are now a $209 billion industry expected to nearly double to $400 billion by 2010, according to a recent report from Nielsen. Today one in five US consumers are LOHAS consumers, “willing to put their money where their mouth is.” An even larger number want to buy green and will-if the price is comparable to other non-green options the consumer has. If you’re looking for a growing market that so far has very little competition in the specialty retail industry, think green!

Is Vice Recession-proof?

In past recessions, “booze and butts” have been considered recession-proof products, but some retail analysts believe these categories may be more recession-resistant than recession-proof this time around. In the wine market, consumption continues to grow globally, according to the trade publication International Wine and Spirit Record, which estimates that the US may surpass Italy as the world’s biggest wine consumer by 2012. Some retailers are opening kiosks and inlines that range from winery outlets for bottle sales and brand-marketing to full-service inlines that combine store sales, seating, light fare and live entertainment. Check out our expanded article on this trend, “Wine Sellers Taste Opportunity at the Mall” in this issue. In the beer category, while some of the biggest beer brands have had to stomach souring sales, the craft-beer market has been virtually frothy. In 2008, craft-beer sales were up 10.5 percent over 2007 to $6.34 billion, according to the Brewers Association, an industry trade group. Every year since 2001, craft beers have been stealing more market share from mass brewers, more than 11 percent over the last three years.

Because craft brewers are an innovative lot, perhaps it’s not surprising that more than a few have successfully used carts and kiosks to promote new brews, increase brand visibility and test new markets. Last holiday season Pelican Pub & Brewery opened a holiday kiosk in Portland’s Washington Square Mall, about two hours northeast of the company’s Pacific City headquarters on the Oregon coast. Spokesman Jeremy Strober says the cart “not only was a great test of the viability of a larger space for us in the Portland market, but it created much-needed visibility and exposure for our flagship store that’s off the beaten path. There were many, many people who saw us in the mall who might not have even have bought anything but who were inspired to come visit our flagship store.” Strober says readers can look for more retail developments from Pelican in 2009. Maybe it will be the company that successfully develops the craft brew mall concept along the same lines as wine sellers are doing now.

To round out the vice category, “butts” may be banned more places than ever, but electronic cigarettes made a big splash in 2008 on carts and kiosks countrywide. Historically, traditional cigarettes have been relatively recession-proof, because for the vast majority of smokers nicotine is a need, not a want. Even setting aside the undeniable trend of consumers becoming significantly more interested in health and well being over the last decade, price is likely to be a factor in this category’s continued rise, with e-cigarettes offering consumers substantial savings over traditional cigarettes. In past recessions studies have shown that smokers in search of savings were much more likely to change to a cheaper brand than quit. Plus, e-cigs give smokers a way to work around the increasingly widespread anti-smoking laws. Historical lessons from Prohibition are valuable here, since today’s smokers are as loathe to give up their nicotine as yesteryear’s drinkers were their whisky. The undeniably vast and aging boomer demographic also will be a big factor for e-cigarette sales going forward. As aging boomers see the effects of years of smoking, motivating them to search for alternatives, e-cigarettes could steal a lot of market share from nicotine gum and other over-the-counter smoking-cessation products-already a multibillion-dollar market.

Yacht makers might be getting a sinking feeling from the credit crunch, but small luxuries are having an easier time. In late February, Cadbury reported a record 30 percent increase in annual profits due in part to a six percent rise in milk chocolate sales, and dark chocolate has been benefiting from recent studies indicating some health benefits.

In a November report that took into account the deteriorating economic climate, market researcher Packaged Facts forecast total chocolate sales would be up 5.3 percent in 2008 and 4 percent a year thereafter until 2012, when sales are expected to top $20 billion. The key driver for growth will be premium chocolate sales, expected to increase 15 percent in 2008, then 10 percent a year until 2012. By that year, NPD says, premium chocolate sales will top $5 billion, representing 25 percent of the total chocolate market (up from 18 percent in 2007). Consumers may be watching their wallets, but when it comes to life’s little luxuries, top-of-the-line chocolate is clearly at the top for millions.

Fashion accessories from belts and baubles to handbags and shoes are gaining more importance for shoppers as they delay larger purchases such as a new dress or suit in favor of new accessories that can spruce up a current outfit for a fraction of the cost-a pattern repeated in every prior downturn for obvious reasons. But in today’s information economy, the trend’s impact is being magnified by a 24/7 stream of blogs and media outlets running stories on how consumers can save money, with the “Don’t buy new, accessorize!” strategy appearing alongside the “Skip Starbucks” advice. A look at Starbucks’ recent sales indicates that consumers are listening-and buying accessories that offer value.

Gadgets and Gear Still Going Strong

Trends from previous recessions are slippery to apply to the tech accessories market today, which is dominated by a lot of products that didn’t exist a decade ago. But retailers who sell accessories and gear for handheld electronics find themselves in an enviable position. When the economy is rolling along and hardware sales are up, tech accessories retailers are in a great position to sell. When the economy is down, consumers will put their new iPod or iPhone purchase on the back burner, instead opting for a low-cost new skin or higher-quality accessory than they might have purchased in the past, which means accessories retailers are in a great position to sell. Apple, which sold nearly 23 million iPods and more than 4 million iPhones over the last holiday season (a company record), leads the pack of electronics makers who are constantly introducing new hardware that prompts the purchase of new accessories. Meanwhile, software makers are busy creating new apps that make our gadgets even more necessary to the flow of everyday life. Not to mention the fact that the handheld electronics that contribute to our business and personal productivity are becoming even more important as budgets and time continue getting squeezed. If we’re going to be tethered to our CrackBerries, consumers reason, the gadgets might as well reflect a bit of our personalities and interests. Maybe even make us smile in the midst of a recession.


Nancy Tanker

Nancy Tanker is the former managing editor of Specialty Retail Report. She has covered the specialty retail industry for nearly 15 years for a variety of publications and can be reached at srrtanker@mchsi.com.

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