Consumers In Doubt

Everything changed on 9-11. We've heard this so many times, but it still hasn't settled firmly into our national consciousness. Before 9-11, we were concerned about the pending economic downturn; now we accept recession as a given. Before 9-11, we hoped for a turnaround by the second quarter of 2002; now we face the prospect of a protracted wartime economy.

In 2000, the gift industry grossed some $55.2 billion at retail. Home accessories and accents reaped a 30 percent share of this market and posted double-digit growth over the previous year, reaching $16.5 billion in retail sales. General gifts, which includes baby and children's gifts, desk accessories, fashion jewelry, gourmet specialties, men's gifts, music, personal care, pet accessories, and wedding and anniversary gifts, posted 9 percent growth over the previous year to garner $13.9 billion at retail. Stationery products, despite flat sales in greeting cards, grew a healthy 4 percent to $13.8 billion. While seasonal decor sales remained steady in 2000, only the collectibles segment of gifts experienced a sales drop last year, down nearly 7 percent to $7.1 billion.

But that was then. Today, no one can begin to guess what difficulties may lie ahead. Yet there are some established patterns of human behavior that can help us make predictions about the future of the gift industry. Research for my upcoming book, Why People Buy Things They Don't Need, identifies new market opportunities for gift companies and retailers even in this time of national crisis.

At least 40 percent of all consumer spending is for discretionary items, purchases driven by emotional needs. Consumers in doubt are consumers under stress, and consumers under stress will try to reduce that stress. For men, that might mean going to bars or sporting events; for women reducing stress often means shopping. The need to satisfy emotional longings has not diminished after 9-11. In fact, it may be even stronger.

For gift marketers and retailers, this holiday season is expected to be strong because consumers will crave the comfort and reassurance of holiday traditions. Consumers will seek out indulgence products they can buy without feeling guilt. There will also be new demand for products that support family traditions. Christmas decorations, tabletop and dinnerware for get-togethers, kitchenware and kitchen decor, candles, fireplace and hearth products, and games and entertainment products will be in high demand this season.

"Made in America" became a much more potent positioning statement after 9-11. In addition, products that convey a symbolic or inspirational meaning will be in great demand. Nostalgia-themed merchandise that hearkens back to a simpler time will bring comfort to consumers. Greeting cards, scrapbooks, and other stationery products that enhance personal communication will also be popular.

Home will remain a focus of consumer spending in the coming year, as consumers hunker down and try to make their homes a more secure and comforting environment. But consumers will focus their home purchases on smaller accent and decorative items, as opposed to major appliances and furniture purchases, which they will put off as long as possible.

Consumers were already changing their shopping patterns before 9-11. Those changes will be accentuated, with mass merchants capturing a growing share of the consumer's budget. More and more gifts are being sold through mass outlets. Mass merchants had only a 10 percent market share of gift sales in 2000, but that represented a 41 percent growth over the previous year.

Another trend that is sending more shoppers to the Wal-Marts of the world is that consumers want to spend less time at the store. They are doing more of their shopping in a single, weekly trip, so they can get back home to safety. Even more significantly, consumers are retreating into their homes to shop via the Internet, through mail order catalogs, even through party-based and other direct-selling methods.

In this new age, small retailers will need to meet their consumers where they live. To begin with, retailers must not delay developing a Web site to promote their store and sell online. They should also consider taking their shop to consumers. If PartyLites, Mary Kay, Tupperware, Avon, and Pampered Chef can do it, why can't independent gift stores offer the same personalized service in the safety and comfort of the consumer's home?

Gift company executives recently surveyed by Unity Marketing say that the following trends will have the greatest impact on the industry in the near future:

• A tightening economy will force weaker retailers and wholesalers out of business. The more challenging economic environment will encourage more innovation, as companies come under pressure to reduce costs and prices at the consumer level, forcing everyone to be even more competitive.
• With weaker retailers falling by the wayside, the remaining small specialty retailers will emerge stronger and more vibrant.
• Consumers are looking for higher-quality, better-designed products, forcing manufacturers to keep their eyes on new product development.
• The dramatic changes that the Internet threatened to bring have not yet materialized. However, as it develops, and becomes a larger part of everyone's lives, the Internet will eventually reduce the need for sales reps.

The industry continues to face the problem of too much product that is too similar — much of it "copycat" product imported from the Far East. Some companies have responded to slower sales by flooding the market with more product, making the situation even worse.

The rising cost of doing business worries gift company executives. They feel there are too many trade shows, and the cost of maintaining a presence at each is out of proportion to the benefits. (The explosion of trade shows is also confounding retailers who don't know which shows are best suited to their needs.) The executives also feel that sales rep groups are not providing the level of service they once did, and are becoming more selective about the lines that they are willing to take on.

Specialty retailers tell Unity Marketing that they remain optimistic about the future. They note that many customers dislike big malls and nationwide chain stores. The chains offer conformity and sameness, while specialty retailers can buy for the local market and personalized tastes. Better customer service is another feature that consumers value in specialty retailers.

Some retailers are optimistic about the prospects of their store Web sites. They see the Internet as an opportunity to reach new markets with new messages. The Internet is also a valuable tool for buying products wholesale, with many firms offering better terms, more discounts, and free shipping for orders placed online. Many are convinced that the Internet will play a greater role in commerce in the years ahead.

One bone of contention among specialty retailers is the practice of companies selling product to mass merchants who then sell the merchandise at a discount from the suggested retail price. Manufacturers need to remember that small retailers sell on quality and service, not price.

Retailers also need more help from manufacturers to increase margins since keystone pricing is no longer sufficient to provide a healthy bottom line. They cite shipping costs as an increasing expense that eats into the margins.

If the gift industry faced a challenge before 9-11, it faces an even bigger one afterwards. While Unity Marketing foresees bright prospects through the 2001 holiday season, as the war effort grinds on the national mood may darken, and discourage consumers from spending on things that used to give them an emotional lift. Gift manufacturers and retailers who are planning for the future need to keep careful watch over their day-to-day business. Managing inventory and costs will be especially important as recession looms. But now is not the time to cut back on marketing, advertising, or promotion. Now is the time to invest more in building business by exploring new and creative marketing ideas and strategies.