The headlines that accompanied the biggest share-price tumble since 9/11 were the last thing British retailers needed to see. "Fears spark global plunge" proclaimed the front page of the Financial Times on 22 January, matching the tone of virtually every national daily. January had already been full of bad news for the UK high street, with the likes of Marks & Spencer and Next announcing that like-for-like sales fell during the key Christmas trading period.
Stuart Rose, M&S's chief executive, told the FT: "There is a very evident slowdown in UK plc and people are financially challenged ... We expect trading conditions to remain tough throughout 2008." Simon Wolfson, the chief executive of Next, echoed these sentiments in The Times: "Customers feel under pressure and, while I don't think that pressure is going to get a lot worse, it's not going to get any better either. We are going to have to run hard just to stay still."
The retail recoil
The British high street is indeed feeling the fear. With interest rates climbing over the past year while energy, housing and transport costs have soared, consumer confidence is waning - and one of the first markets to really feel the crunch is the non-food retail sector.
Richard Dodd, head of media at the British Retail Consortium (BRC), says: "The fact that customers' finances are under such a lot of pressure and confidence is weak and disposable incomes are falling means that it's an even finer balancing act for the retailer, with less margin for error than there might otherwise be." For most retailers hoping to weather the storm, well-thought-out promotional strategies will be key to keeping footfall and sales up.
Dodd says BRC figures show that during December, like-for-like retail sales rose by just 0.3 per cent year-on-year, compared with 2.5 per cent in 2006 - and that figure includes online results, which represented six per cent of retail sales in 2007. With inflation at more than two per cent, things seem grim for most high-street players and the outlook will bring little cheer to even those that had positive results over Christmas. The BRC is predicting a "very tough first half in 2008", according to Dodd.
And the retail industry body is not alone. Many retail analysts in the City were predicting a difficult year for the high street even before the global stock markets hit the skids in January and talk about a recession in the US spread. Sam Hart, an analyst at Charles Stanley, says his firm expects the slump seen at Christmas to continue. "We expect the UK economy to see quite a marked slowdown, but at this stage we're not exactly forecasting a recession in the UK - so we're not expecting to see an absolute bloodbath in retail, but we certainly think that the environment will remain extremely challenging."
Those retailers that hope to successfully meet the challenge will have to put in place promotional strategies that take them beyond short-term tactical discounting, notes Marcus Sandwith, director at integrated agency Haygarth. "Where promotions and incentives can really help is by creating that longer-term relationship with consumers," he says. "It's all about gaining their loyalty."
Sandwith argues that promotions are the part of retail marketing that high-street chains can use to really stand out from their rivals. "If things are going badly and everyone in the sector is having a bad time, then you need to stand out from your competition - especially if you've got similar products," he says. "Promotions and incentives are your point of difference."
Knowledge is power
Understanding consumers' lifestyles and factoring that information into a promotional strategy is one route to success in a tight market for retailers, says Gavin Dein, chief executive of loyalty programme provider Reward. "Consumers are more driven now by their work and lifestyle," he says. "Retailers that ignore both of those in their communications will probably stay in the same cycle of marketing. If you can understand your consumers' lifestyle, you can promote to them in other areas of their life so that you're not wasting ambient media - you're actually targeting people."
Dein suggests retailers should analyse their own customer data to gain insight into their consumers, and consider cross-promotions with other brands that these people interact with.
Sandwith notes that loyalty schemes are central to understanding customers - and to ascertaining the areas in which stores are underperforming. "By doing that and using mapping and profiling to analyse their data, retailers can then work out whether they are underperforming by region or store," he says. "Then they can start drumming up business - with some old-fashioned experiential activity - for those underperforming stores."
Sandwith adds that this type of activity can be more economical than across-the-board promotions. "It might be that you don't have much money to spend on footfall-driving promotion, so you just spend the money where you need it," he says. "Focus on those 15 per cent of stores that are really underperforming."
Great expectations
Creating great experiences for customers and building long-term relationships with them is vital for retailers to succeed in the long-term, Sandwith maintains. He advocates promotions that give customers an experience they will enjoy and associate with the brand in order to keep them coming back. He suggests using the type of customer evenings that allow people to try new products - "exclusives and things that make them feel special".
Creating that special experience also means training staff so they truly understand their wares and can help customers. It also means ensuring they are motivated to take on that role. "People want to try things themselves, so incentivising staff to promote those products and making it a really good customer experience is essential," Sandwith says.
Brands themselves can help their retailers to do this and ensure their products keep moving (see box).
Sandwith says simply having a well-thought-out promotions strategy that does not try to do too much is a big step for many retailers. "Having all sorts of different promotions each month is not the way forward," he says. "You need to focus on a small number of things so consumers know what you're linking with."
With many consumers facing complicated financial situations, offering them straightforward solutions can sometimes be the best way to ease their fears and get them looking for a little retail therapy.
ENGAGING CONSUMERS VIA EXPERIENTIAL CAMPAIGNS
Retail brands need to create a point of difference in a cluttered and highly competitive marketplace, and experiential activity is one way of achieving this. An example of a Haygarth campaign that successfully tapped into consumer's hearts and minds was "Nokia Destination 3". This was an interactive roadshow experience which toured the UK's biggest shopping centres to mark Nokia and 3's new relationship and showcase 3's offering on Nokia handsets.
"Nokia Destination 3" had three zones (music, sports and games) which provided rich hands-on product experience in a fun and engaging way. A free prize-draw drove footfall to retailers selling 3 packages and a purchase gift (summer kit bag) helped sales. It delivered cut-through, and relevance and credibility, but also provided a platform to educate on the brand and product.
Creativity has to be backed by strategy and planning - the clients used Haygarth's in-house proprietary tool, Smart Targeting, which allowed them to draw on the specialisms of direct marketing, data planning and consumer insight. The results were impressive - exposure to 1.6 million consumers, with 3's footfall increasing by two per cent. Building relationships with third-party retailers also contributed to the project's success: all stores were notified in advance and sold the benefits of co-operative activity, and constant communication enabled Haygarth to leverage additional marketing support, such as non-paid-for advertising space in-store, which drove sales at a time when 3's retail estate was minimal.
Using experiential activity to achieve both footfall and measurable sales uplift is not easy. But if you target the audience in the right place and at the right time, build relationships with retailers and ensure the activity is packaged creatively, you are giving yourself a head start.