Sales indicator gives retailers hope, but experts warn consumers’ frugal habits will be hard to break

The latest CommSec Business Sales Indicator suggests the retail industry may finally be starting to pick up, despite research on consumer habits showing customers are dedicated to frugality. A new survey conducted by IBM of over 30,000 consumers suggests retailers need to start personalising their deals and offer tailored discounts in order to get the attention of customers bent on saving their cash.

This trend has caught on in the United States, where clothing retailer Gap launched a Facebook promotion earlier this week to allow users the ability to offer the price they want to pay. The company said it could no longer afford to simply offer discounts like everybody else.

The CommSec BSI, which tracks the amount of credit and debit card transactions on the Commonwealth Bank network, rose by 0.5% in February – the strongest result in 18 months.

CommSec economist Craig James said the result was a source of encouragement, pointing out that only two of the 20 sectors recorded in the survey said spending was weaker than the previous month.

But despite the hopeful figures, the overall mood remains gloomy. Already this week Billabong has cut its profit forecast due to the disaster in Japan, and department store giant Myer revealed yesterday its profit dropped by over 5% in the first half of the year.

On a like-for-like basis, sales were down by 5.2%. Chief executive Bernie Brookes added that ongoing frugality is hurting the company and that rising living costs will only make matters worse.

But the new IBM Smart Consumer Study, which questioned over 30,600 customers worldwide including over 2,200 from Australia, has found that while customers are increasingly frugal they are still looking for good retail opportunities.

“Traditionally the consumer confidence index has been the indicator of retail sales, but despite 75% of Australians being optimistic, that isn’t reflected in spending,” IBM lead for retail and consumer products in Australia, Ian Wong, told SmartCompany.

The survey confirmed the trend towards frugality, with 29% saying they will only buy what they need, while 23% will continue to search for items on sale and 18% will wait longer to make a purchase.

“We think the new frugality is definitely back in fashion. We can talk about a variety of macroeconomic factors and so on, but the fact is consumer confidence is not tracking sales, and retailers need to respond.”

Wong says retailers cannot ignore the frugal attitude any longer, and must instead respond to it. He points to findings in the survey which reveal that given the right opportunity, buyers will still fork over the cash.

“Consumers are looking to purchase items that are discounted, but it really does have to be tailored to them. It isn’t only about price because there are so many discounts – they are seeking value.”

The survey found that offering personalised promotions was rated as the number one influence on how people will increase their spend – Wong says this translates into how you offer discounts in-store, and reward repeat customers.

But the survey also revealed technology is critical when it comes to overcoming the burden of frugal customers – 45% of Australian respondents are willing to use two or more technologies to shop – up by 14% since April 2010.

Up to 12% of Australian shoppers are willing to use their mobile devices during the shopping process, and 40% want to be able to check prices wherever they are.

“We found in the survey that more people are purchasing online, and they want to find value and personalisation in that.”

“Amazon and iTunes are good examples, where they give you recommendations on goods to buy. They are expecting that, and you should expect that too, as consumers now want personalised deals as opposed to something more mass market.”

Wong also says retailers need to invest more time in talking with customers in store, listening and responding to the goods they want – so businesses should increase their power on the shopfront floor.

Australian National Retailers Association chief executive Margy Osmond says the key is interaction – whether that be online or in-store.

“It’s not a question of just grinding information anymore and being “on sale” is just not enough. What we’re looking at is the need for retailers to rethink the way they talk with customers face-to-face.”

Wong says in order to get customers spending again, businesses need to start giving more attention to personal deals, whether they be loyalty offers or any other scheme.

“There are two things here to get people spending again. There has to be value in personalisation, you have to be multichannel, because shoppers are doing so in a variety of ways.”

“There is a shift to power now that must be realised, and this is what customers are demanding.”