Retailers release the book on the recession

The US economy may not be in recession, but many stores across the country seem to be.

Take Kroger for example. Rodney McMullen, the grocery giant’s CEO, told CNBC earlier this month that inflation-stricken consumers are switching to lower-priced private brands to save money by downloading more coupons, cooking at home, and more.

“What customers are telling us is that they’re already acting like they’re in a recession,” he said.

Now, major retailers are clearing their playbooks for a recession, or at least a period of slower sales. Companies have been previewing their strategies in recent weeks as they report holiday quarter earnings and share full-year forecasts.

Goal buying food and household items for pedestrian traffic. Macy’s and Walmart trying to get more sales from their most loyal customers. Best Buy and others are chasing new and exclusive products that entice consumers to open their wallets and even pay full price.

While the economy remains strong as the tourism and restaurant sectors bounce back, a “flash recession” appears to be on the way for the retail sector. Many retailers are calling for lower sales this fiscal year, especially after rising inflation. It’s a sharp turnaround from the early years of the pandemic, which were a boom time for retail spending.

Here are some strategies for retailers.

A gallon of milk, paper towels and soap. Retailers are stocking the types of everyday products that shoppers often stock up on, as shoppers think twice about making discretionary purchases.

Target, for example, said it intentionally skewed its inventory mix toward grocery and household items. At the end of the fiscal fourth quarter, its total inventory fell 3% year over year, but its discretionary inventory fell 13% over the same period.

Walmart, the nation’s largest grocer by revenue, is benefiting from higher grocery sales. It used lower-priced food products to attract shoppers by income level, including households with annual incomes above $100,000.

However, there is a downside to selling evergreens: they bring little profit.

Walmart Chief Financial Officer John David Rainey admitted at a meeting with investors in late February that “the shift in product mix has had a negative impact on our margins.”

As things get tougher, retailers are looking to a familiar audience: loyal shoppers.

Macy’s and Costco among retailers who want more sales than the tried and true. Some have even turned affiliate programs into money makers. Walmart is trying to attract more customers to its Walmart+ subscription service, which costs $98 a year or $12.95 monthly. Best Buy has a Totaltech program that costs $199.99 per year. Lululemon There’s a free and paid membership program that debuted in the fall.

Costco, a membership-based warehouse club, is seeing many customers upgrade to Executive membership, the highest level of membership. Chief Financial Officer Richard Galanti said on a call with investors in early March that at the end of the most recent quarter it had 30.6 million paid Executive memberships, about 45% of total paid members and 73% of worldwide sales.

At Bloomingdale’s, which is owned by Macy’s, members of its Loyalist program drive more than 70% of same-store sales involving its own brands and third-party brands. Macy’s ended the fourth quarter with members of the program spending 7% more annually, CEO Jeff Gennett told investors.

Kroger’s McMullen said Wednesday at a Bank of America investor conference that its loyal customers spend 10 times more than casual shoppers. He says the company wants to get more for its dollars by getting “people into the rewards cycle” and better personalizing their experience.

As customers become more wary, retailers tend to gravitate toward the next hot thing, or at least what they already have.

Target forecasts modest or even declines next year, with same-store sales ranging from a low-single-digit decline to low-single-digit growth for fiscal 2023. Even so, the discounter is pushing ahead with exclusive items and flashy products. customer friendly conditions. Target shoppers will soon be able to grab a Starbucks coffee, get cash back, and shop online without ever leaving their car. The company will launch or expand more than 10 private brands in the coming year.

“A lot of that doesn’t happen in an environment where consumers are negotiating,” Christina Hennington, Target’s chief growth officer, said at an investor event in New York.

Value is a key part of retailers’ new offerings. At Kroger, shoppers can find a new exclusive brand called Smart Way, which offers staples like sliced ​​bread and mustard at rock-bottom prices.

Best Buy CEO Corey Barry said the innovation could help spur shoppers to upgrade their phones or spring for new video game consoles, especially in the latter half of the year.

“We believe there will be a desire to stimulate replacement cycles going forward,” Barry told reporters in early March. “Obviously, our suppliers are very interested in creating the next hot product, and we are the best place – and indeed the only place – for them to show off their new technology breakthroughs.”

When sales are down, retailers want to make sure every dollar counts.

Profit margins will draw more attention from investors, especially after a year in which retailers faced higher labor, merchandise and transportation costs, and were hit by markdowns on excess inventory.

Some sellers are rethinking their approach to discounts and questioning other costs, such as free shipping or free shipping.

Macy’s took a strategic approach to pricing. Instead of marking up items online and in each store, it can use dynamic pricing to adjust where price changes can make a difference. It can send targeted discounts to specific shoppers based on what they’ve browsed or purchased.

Speaking to CNBC, CEO Jeff Jennett said the company is “in the early stages of a private offering, but there are big dividends to be had.” He called it one of the growth factors of the company in the coming year.

Some retailers have made free shipping a discount only for busy or high-spending customers. Nikefor example, offers free shipping for shoppers – if they share their personal data by joining the membership program.

Amazon, a retailer associated with mostly free shipping and handling, has recently made a significant change as well. Starting in late February, the e-commerce giant began charging delivery fees for grocery orders under $150. It previously offered free Amazon Fresh delivery to Prime members who spend more than $35.