Shoestring Marketing: Retailers caused own holiday woes by panicking

Alf Nucifora is an Atlanta-based marketing consultant.

I can never be accused of proclaiming an in-depth understanding of economics. I read the business trades, study what the pundits have to say (most of whom speak with the certitude of a meteorologist) and try to comprehend the sometimes convoluted and often contradictory interpretations of the leading economic indicators. But all to no avail. I remain confused.

That's why, as is the case with all street-wise generalists, I form much of my opinion, including marketing judgment, from past experience, visceral feedback and touch. Historically, I've been more right than wrong.

I knew something was amiss with the economy way back in mid-2000 when CNBC, the Wall Street Journal and the rest of the mainstream business media pack were still discounting the economic recession-to-be. I knew something was up because I was beginning to receive a tidal wave of resumes, the majority representing talented, experienced, six-figure wage earners, all of whom were recently out of work.

In more recent times my fascination has rested with the American consumer's behavior in that juiciest of buying times, the Christmas retail season. It's been interesting to observe the erratic, but intelligent, behavior of the retail buyer and the resulting angst on the part of the retailer class.

Consumers turned unpredictable, if not downright cantankerous. Retailers have responded with fear, as they are prone to do when confronted with the specter of consumer intransigence. And the economy continues to reek of malaise.

Interestingly, this may not end up being a one-time happenstance. Look to Christmas 2002 as one of the closing chapters in the marketing textbook titled "The Dummies Guide to Retailing: The Consequence of Irrational Behavior or, How the Customer Finally Wised-up"

An ailing industry

By now, we all know that it hasn't been a good time for retail. Taking into account the much-debated and denied recession, Sept. 11 aftereffects and fluctuating consumer confidence, it's no wonder that the numbers are off. November sales performance disappointed. Thanksgiving-Christmas performance is projected to be off by 20 percent plus in terms of projected growth in year-to-year dollar volume (2002 versus 2001).

The Internet continued to live up to its inevitable potential by playing to its major strength and traditional retailer weakness convenience and quietly siphoned-off more retail transactions in the process. As the mainstream consumer grew comfortable with the online universe, traditional fears relating to security diminished.

E-tailers also got their act together addressing previous problem areas such as ease and cost of delivery. The smarter traditional retailers saw the writing on the wall and chose to absorb the Internet into their selling protocol. Let them prowl and browse the online aisles, and then buy and pick-up from the off-line location, they said. Bottom line, Internet sales are on a tear with double digit, year-to-year seasonal gains in the realm of 30 percent to 70 percent for categories such as toys, jewelry, appliances, music and video, and home and garden.

The mundane prevailed

I'm willing to believe that consumers could have been coaxed out of lethargy if there was something to excite the juices. Instead, it was the same, old, tired lineup of DVD players and George Foreman grills. Ah, for the days of lines outside the store, expectant shoppers elbowing each other for the last Furby on the shelf.

This season, even the cosmetics companies, notorious for their lack of merchandising restraint, played it quiet and safe, forfeiting the field to a small handful of players led by Este Lauder and Lancme.

Not surprisingly, more than 50 percent of gift-givers gave cash and certificates in lieu of a specified or desired gift. All the better, incidentally, to take advantage of those after-Christmas sales where the serious bargain seekers really get down to business.

How the retailer behaved

Fear begat desperation. How else to explain 6 a.m. store openings, 70 percent discounts, coupled-coupons ("Use this coupon to take another 15 percent off the sale price") and a discounting season that began in earnest well before the Thanksgiving peak. This insane, lemming-like behavior drove sales, destroying margin in the process and devaluing what last remaining currency retailing could lay claim to. For this we can primarily thank our department store cousins.

How the consumer behaved

Consumers made out like bandits. They waited through Thanksgiving, hand firmly buried in pocket. They delayed through Christmas. Why not? They knew there was still one more remaining discount to be squeezed from the frightened merchant pack. Let the other guy blink first.

Pricing frenzy became the order of the day as consumers feasted in waters chummed by escalating discounts and deals. Mainstream department stores, like those of the Federated chain, behaved like discounters (all price and no service) while discounters, primarily of the Wal-Mart and Target type, emulated the department store (declining service and lost cachet).

In the meantime, battle-scarred consumers, Internet-emboldened and product-savvy, looked around for the best price. Why not? Retailers gave little of added value to justify a decision based on any other ground. So much for protecting and leveraging the value of the brand.

When the retail bankruptcies are announced and tallied in first-quarter '03, just remember that it didn't have to be. He, who lives by the coupon, dies by the coupon.