What Do Consumers Expect From Retail?

It’s been hard times recently for retailers, for example, R.H. Macy & Co. Founded by Rowland Hussey Macy in 1858 in New York City, on opening day the company had sales of $11.08. That would be $328.10 today based on inflation. Macy's moved to Herald Square in 1902 and through expansion eventually became the “largest store in the world.”

When you say the name “Macy’s,” most consumers think of its Thanksgiving Parade, “Miracle on 34^th Street,” 4^th of July fireworks and the company's star logo. The problem is that when they think about “retail,” they don’t think “Macy’s,” or at least not as often as they used to. So Macy’s — like many other retailers ­— has struggled in recent years.

Retailers have faced a combination of competition from fast-fashion parvenus, online shopping sites, more consumers shopping online, shifting fashion preferences and, most importantly, shifts in consumer values that shape category expectations for retail, which, ultimately, shape consumer behavior.

Always Something Cheaper
Retailers like Macy’s spent most of the recession teaching consumers that they could always get something cheaper, and customers were fast learners, hunting for bargains and migrating away from department stores to discounters, even when department stores offered deep discounts. It was advantageous for consumers, but ruinous for store margins. Mall traffic is down. So is Macy’s stock, which has fallen 50 percent from a 2015 high. Sales are down too, by nearly 5 percent in the quarter ended last October. Now, Macy's is closing stores and plans to cut nearly 10,000 jobs. What’s a 21^st century retailer to do?

According to nearly 50,000 consumers who participated in this year’s Brand Keys’ Customer Loyalty Engagement Index (CLEI), the problem seems to be that brands like Macy’s are just not able to meet the expectations consumers hold for their ideal in the department store category. In the retail category, overall consumer expectations have increased 24 percent over 2016. Retail sector brands have only improved by 9 percent, which leaves an enormous gap between what consumers want and expect, and what brands are seen to deliver. So is it a surprise that consumers are looking — and buying — elsewhere?

Survey respondents participating in the CLEI self-select the categories in which they are consumers, and the brands for which they are customers, screened to be in the top 20 percent of the brands’ customer bases. Participants aren't given a list of brands, so brands have to be mentioned frequently enough to make this list. This year, respondents mentioned two new names enough times to make them statistically generalizable, and they were added to the 2017 CLEI survey.

Top Department Stores: Nordstrom, Bed, Bath & Beyond
When asked about “department stores,” Nordstrom and Bed, Bath & Beyond made the cut this year.  If you thought that Bed, Bath & Beyond was primarily bedroom and bathroom, consumers would disagree. They now see Bed, Bath & Beyond as a player in the “Department Store” category. In the “Apparel Retail” category, consumer responses added three brands to this year’s list: Zara, Urban Outfitters and Levi Strauss.

New brands entering any category are always a sign that consumer expectations are going unmet, thus consumers look away from the usual category suspects and seek new brands. It should be particularly worrisome to category brands when those new entries land at the top of the loyalty and engagement rankings, like Nordstrom did in the department store category (and Zara in Apparel Retail).

This year, consumers ranked department store brands as follows:

1. Nordstrom
2. Marshalls
3. T.J. Maxx
4. Bed, Bath & Beyond
5. J.C. Penney
6. Kohl’s
7. Macy’s
8. Dillard’s
9. Sears

It’s no surprise that consumers are hardwired to the internet in everything they do, and the consumer value of “connected shopping” is driving expectations in the department store category.

Soaring customer expectations are creating an increasingly challenging environment for retail, but it’s been independently validated that brands that are best able to meet expectations customers hold for the category ideal always see better marketplace behavior from those customers. Therefore, rankings like these will correlate highly with same-store sales and, axiomatically, brand profitability.

Want to be an all-star retailer? All you need is an answer to these three questions:

1. What does the ideal in my category look like?

2. What do my customers expect about what drives engagement in my particular retail category?

3. What values will best fulfill those expectations?

Retail marketers need to address the really important and differentiating values, and they need to do it before those values turn into category-value commodities, like deep discounting — and before the retail brands turn into commodities themselves.

Do it before the competition can gain a real in-market advantage, which is the bottom-line benefit about leveraging the right values against customers’ expectations for the ideal in your category. But first, you actually have to be able to accurately identify them.

Which, when it comes to retail research and brand planning is the ultimate bottom line.

Robert Passikoff, Ph.D., is the founder and president, Brand Keys, Inc., a brand research consultancy specializing in predictive consumer behavioral brand equity, loyalty, and engagement metrics.