The news is full of doom and gloom right now about recession and inflation and what impact it will have on spending habits. Predictions on how it will impact holiday shopping this year have been circulating for weeks now. In Canada, it is estimated holiday spending could be down this year as much as 17%* and shoppers will get an early start to try to take advantage of deals and markdowns as much as possible.
If I was currently managing a product assortment, here are some of the things I would be looking at to navigate changing customer habits and economic challenges.
Don’t Trade Customers Down
It is important to keep lower priced items in an assortment, you always need them whether in an economic downturn or not. The key is to not create an assortment where you are doing what I call “trading down”. If you have products in an assortment for $20 and $25 without clear differentiation between each, chances are the customer is going to buy the $20 item. Could you remove the $20 product from the assortment and have the $25 item as your opening price point? Its tricky to know and could take some testing to figure out but is worth considering. With all the competition in the market, you don’t need to be competing against your own assortment.
When I managed merchandise assortments for loyalty programs, this is one technique I used to keep and grow my share on merchandise sales. It was unlikely the number of merchandise transactions was going to grow, so I focused on growing the value of each of those transitions.
Create Value and Urgency to Buy
When trying to stimulate buying, companies traditionally have resorted to markdowns. Thus, creating an consumer base who have become conditioned to wait for sales to buy anything. Markdowns are a good tool when used effectively. They have their place in the strategy but shouldn’t be the go-to when trying to get consumers to buy.
What I prefer are planned one time opportunity or special buys. Products that are not part of the regular assortment, bought in a limited quantity and that offer great value. Once the product is sold out, it’s gone. This a great way to inject newness into the assortment. It borrows from the off price model in that customers never know what they are going to find. If there is something people like, they learn they better buy it now.
In stores, space for this can be a challenge since everything has to be planogrammed. Having flex space to ensure room for special one time buys would solve that issue. Costco does this well with their road show brands. They are always in the same spot in the store and customers know the products are there for a short period of time.
People tend to shop and buy lower priced products during an economic downturn. This is problematic for a few reasons. It puts inventory pressure on those skus. If this wasn’t forecasted, you may find yourself out of stock on key items going into and during the holiday season. It also lowers the average transaction value which will affect overall sales.
Reaction to these trends might lead to adding more items at lower prices to the assortment. However, if this is not done strategically, there could be too many products within the same price range resulting in cannibalizing your own sales.
Adding products to have some insurance against unexpected surge in sales at the low and mid price points is smart. I would suggest keeping a difference to $5-15 between prices so it is clear there is some variation of specifications between them. I would increase that number as the price points get higher in the assortment.
There might also be some thought to avoid or stop buying and/or marketing higher priced items. If analysis shows purchases at the higher end decreasing so drastically it makes sense to do that, I would keep at least 10% of the higher end assortment. There are always customers who will want to look at, research and potentially buy aspirational products no matter what the economy is doing. It could also result in the planning of a future purchase. Keep them in the assortment so customers know they are there.
It will be a challenge managing assortments through the holiday season and into 2023. Supply Chain is still a challenge. Consumer spending habits are a challenge and change quickly. Watching sales and trend info carefully and often will allow businesses and buyers to proactively manage through these challenges. The ones that manage proactively and not reactively are the ones I believe will survive.
*source: Global News article Holiday spending in Canada expected to fall amid recession concerns: report