Retail in the Time of COVID-19, Part 3: A Changing Product Focus
Anyone who studied advertising or marketing in the past 50 years will remember E. Jerome McCarthy’s four P’s: price, promotion, product, and place (distribution). These are the key variables most commonly used by organizations constructing meaningful marketing or business strategies. And, all things being equal, are thoughtfully considered in a reasoned balance. In hindsight, the retail industry has a pretty sketchy record when it comes to McCarthy’s principles.
In the golden days of retail…
From the industrial revolution to the 1960s, it could be argued that product and place stood at the forefront of importance. Merchants were tasked to source goods most relevant to their local constituencies, and deliver the product with the level of service required to keep loyalists coming back. As America prospered and the middle-class grew, discretionary dollars became more available to lavish on non-essential items for home decorating, apparel & accessories, beauty and gifts — this is when department stores truly flourished. While maintaining a baseline supply of the basics, buyers were free to explore new and unique products from destinations near and far. Once in the store, these products were displayed with creativity and panache, whether the item was as sophisticated as a new Dior gown, or as simple as a gift box of candy. In the effort to cement their reputations as the first retail “brands” in America, department stores and specialty retailers used all their skill and merchandising creativity to differentiate themselves from perceived competitors.
It wasn’t until the early 1970s when the other two P’s from McCarthy’s marketing principles took command of the industry… price and promotion. The economic instability that started with the OPEC oil embargo of 1973 wreaked havoc on domestic industrial production, blue collar employment, and signaled the beginning of the end for the spending middle-class of America. With high unemployment and hyper-inflation through the 70s and 80s, the consumer now demanded low-priced commodity goods, typically imported from countries with low wages and overhead costs. Enter big box retailers and discount stores that soon eclipsed the department stores, and local merchants who couldn’t compete on the price and promotional based strategy of the newcomers. The emergence of eCommerce retailers in the 1990s and beyond, only exacerbated the difficulties for legacy retailers to compete. Bottom line: many retailers could no longer afford speculative buying or creative merchandising. Further, many legacy brands passed by the wayside in favor of those who could primarily focus on lowest price, highest promotion, and fastest delivery.
The huge glimmer of hope in recent years for the industry was the realization that not all retailers can be everything to everyone. In order to succeed, it’s necessary to develop a crystal-clear picture of who you plan to serve, and provide that target audience with differentiated product and meaningful service — in a harmonized brand experience most appropriate to their expectations. What started with a groundswell of entrepreneurs over the past 10 years led to an industry-wide adoption of similar strategy. It was working.
Now, let’s get back to reality…
At the onset of the COVID-19 pandemic, we saw consumers forcefully cast their votes to indicate which products they wanted and, as mentioned in a previous post, consumers were thinking faster than retailers could react. Food, water, and shelter were the instinctive choices for priority. As expected, there was a dramatic YOY increase in the purchase of canned goods, frozen foods, dairy products, cleaning supplies, and OTC healthcare products as reported by Stackline Intelligence.
As the climate continues to change and needs continue to shift, consumer purchasing habits will as well. Now, we look forward and identify the right products we will need to get back to business as usual. That original instinctive drive towards essentials takes a bit of a backseat, and the toilet paper hoarding calms down.
Looking at recent buying trends offers a glimpse into how we’re adapting to this new normal. Our choices in appliances, apparel, and activities reflect our changing behavior:
Bread machine purchases went up 652%. While this increase may initially seem quite surprising, it actually makes complete sense. Families at home are looking for ways to keep busy with interesting projects, especially ones that ultimately produce an edible good.
While overall fashion apparel revenue may be lower than formerly anticipated, retailers such as Walmart, are seeing a specific increase in sales for tops — shirts, blouses, button-downs, etc. As non-essential workers transform their homes into offices, they look to tops to ensure their professionalism isn’t lost during days full of video conferencing.
Now think about something random, like puzzles. When was the last time you purchased one before Coronavirus? The Puzzle Warehouse, a family-owned shop in St. Louis with a towering puzzle inventory, began to find itself overwhelmed with business in late March. This store was previously selling 1,000 puzzles on any typical day In the past few weeks, it has been exceeding sales of 10,000 puzzles a day.
When this dilemma passes — and it will — many observers hope the retail industry will quickly return to its recent innovative product development and creative merchandising strategies seen just months ago. But, only time will tell. It’s safe to say that years from now, when people read about this in their history books, they will learn about this moment, alongside the section on McCarthy’s four P’s.