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Checking in: Consumers, let’s make a deal

by Steven Feldman

About a year ago I was taking to Jim Mudd, president of Sam Kinnard’s Flooring Outlet in Louisville. Good news, bad news. Despite the economy, when he had a warehouse sale or special limited-time promotion, he did near to record business for that particular event. However, no sale, no business. He said consumers were needing a reason to buy.

One year later, as the economic recovery shapes up stronger than expected, with forecasts of 3% growth (revised from 2.8% in January) and retail sales climbing at a 10.1% annualized rate the past three months, more consumers are opening their wallets more widely than anticipated. Attribute that to higher incomes, a stock market rally and abating fears of layoffs.

But that doesn’t mean spending habits have changed from the past few years. Consumers are still watching their dollars and seeking deals, and that demand has forced retailers of all shapes and sizes to change the way they do business.

For example, Whole Foods, the upscale grocer, now touts weekly sales. Starbucks now boasts brewed coffee for about $1.50. Morton’s now sells three mini-burgers at its bar for $5.

Americans’ appetite for bargains is hearty. Three years ago, 48% of consumers bought most products on sale. Today, it’s 53%, notes retail market research firm NPD Group. Last year, nearly seven in 10 consumers shopped in a discount, big-volume or off-price store, compared with five in 10 three years ago, NPD says.

Clearly, even as the recession abates, consumers shaken and educated by it continue to stop, look and think before they spend. The recession taught consumers their vulnerability.

Flooring retailers must take notice. Today, she may not necessarily want cheap, but she wants a deal. She wants value. She wants to feel good about her purchase. It’s no coincidence that two retailers with whom I regularly speak, Rite Rug in Ohio and Airbase in the Mid-Atlantic, continued to do relatively well during and post recession. The hallmark of both? Value.

I mentioned Whole Foods. The health-conscious supermarket had the reputation as “Whole Paychecks.” When same-store sales fell 5% early in 2009, it launched a series of one-day, three-day and week-long sales and posted big signs touting them. It worked. Same-store sales were up 2.5% last quarter from the same quarter last year.

At the other end of the spectrum, a record 87.5% of Costco’s members renewed their $50 memberships in the past year. And, sales at U.S. stores open at least a year were up nearly 5% in the first quarter compared with 2009’s same period.

Then there is the great phenomenon, Starbucks, which saw its sales tumble as consumers balked at the idea of paying $3 to $4 for a coffee drink. It experimented with several deals, including a breakfast value meal. But the one that’s been the biggest hit has been its brewed coffee, which has been lowered in most stores to about $1.50.

My favorite economist, Alan Beaulieu, predicted it a year ago. He said unlike past recessions, this recovery would not be driven by the high-end, but rather, by value. Give consumers what they want and they will come.