The US retail sector has seen dramatic changes during the past decade and the 2003 holiday season was no exception, with sales being driven mainly by four specific consumer groups - adults aged 18-34, males, African Americans, and Hispanics - according to the latest in an annual series of studies by marketing communications agency, Meridian Inc.
Department stores experienced the most dramatic change, with the number of consumers naming them as "the place they spend the most" declining from 15% to 11% over the past four years.
And, according to Meridian's study, the most affluent consumers are the least satisfied: they continue to spend less in department stores because they can't find what they want. They are moving to mid-line retailers (such as Kohl's and Penney's) for their basic apparel and home furnishings, and to catalogues and the internet to find the items they want. Additionally, price is becoming the primary reason for customers to shop at a department store. Price has increased as the major driver of patronage from 23% in 2000 to 38% in 2003.
The consumer groups supporting department stores are also changing. In the 2003 study, 11% of Caucasians, 15% of Hispanics, and 18% of African Americans reported spending the most at a department store. Data from the study indicate that the African American and Hispanic consumer groups now account for 25%-30% of department store sales. Significant changes in the shopping behaviour of these consumer groups - and their purchasing motivations - will require department store management to make meaningful changes to their assortments and strategies in order to accommodate their new customers. According to Meridian, based on experience with other retailers, the changes will need to include size scales, product fit, colour palettes, and a more 'purchase for self' assortment during the holiday season each year.
Department store management's other challenge will be how to profitably grow the business as a price-driven retailer. The high-cost model of the past is not a solid and logical foundation for a retailer that has adopted a highly promotional, price-driven advertising strategy.
The study also found that having what the customer wants continues to grow as the major driver of attracting or losing customers. Selection was named as the major reason for consumers switching stores; it has increased from 35% in 2000 to 43% in 2003 (compared to price at only 17% in 2003).
Looking at the population in total, consumers with income less than US$50,000 are moving share-of-wallet from mass merchants to mid-line stores, while consumers with incomes from US$50,000 to US$75,000 are moving from department stores to mid-line and specialty stores, and consumers with incomes over US$75,000 are moving to catalogues, the internet, and specialty stores.
Spending on gifts also varies by ethnic group. Caucasians report spending 72% of their holiday budget on gifts, while African American and Hispanic consumers report spending only 62% and 52% respectively on gifts.