SOURCE: AlixPartners

March 04, 2008 09:00 ET

Economic Worries Pushing Consumers to Lower-Price Merchants, Endangering Higher-Price Stores, According to New AlixPartners Survey

Low Prices Jumps to the Top of Consumers' Priorities; Wal-Mart, Store Brands Likely to Benefit, Most Others Face Tough 2008

NEW YORK, NY--(Marketwire - March 4, 2008) - Everywhere U.S. consumers look, they hear bad news: oil prices, mortgage woes, housing slumps, layoffs -- and it now seems clear that these things are having an impact on their psyche. For the first time in more than a decade, consumers rank low prices as the most important determinant of what and where they buy, eclipsing product quality, customer service, the shopping experience and ease of shopping. That's according to the 2008 AlixPartners Consumer Sentiment Index(SM), a survey of more than 7,400 consumers throughout the U.S. conducted by AlixPartners LLP, the global business-advisory firm. These and other findings in the survey show that consumers are being driven generally to lower-price merchants, a move which will have a big impact on retailers of all kinds.

Getting "the lowest price available" jumped dramatically in importance from similar surveys in the past. Also up were "store offers guaranteed lowest prices" and "prices remain constant."

"In the ten years that I've administered surveys like this, consumers have always said that while absolute price is important, at the end of the day they were usually willing to pay a little more in order to get such things as service or a good overall experience," said Fred Crawford, a managing director with AlixPartners and the firm's leading consumer expert. "However, this year, it's a whole new ballgame. This year, consumers are saying it's all about price, price and price. Clearly, 2008 will be 'the year of value' in U.S. retailing, and that's going to have a dramatic impact on retailers of all stripes. This year is going to be batten-down-the-hatches time in retail."

Among other things, the survey finds that consumers, no matter what their income level, are now primed to shift "one level down" in terms of the type of stores they shop, with aspirational high-end retail shoppers shifting down to department stores, department store shoppers dipping down into mass-market stores and so on.

"Consumers who were shopping at Nordstrom's [JWN) and Macy's are now looking at JC Penney [JCS] or Kohl's [KSS]," said Crawford, "and those were shopping at JC Penney are now at Wal-Mart [WMT], while some of those who were at Wal-Mart are now at dollar stores. You're going to see a lot more Lexuses and BMWs in Wal-Mart parking lots going forward."

Crawford, who is also co-author of the Business Week and Wall Street Journal best-selling business book, "The Myth of Excellence," added: "While Wal-Mart's service scores in this survey are as low as I have ever seen, the company is well-positioned for the shift we're seeing in consumers away from service and toward price and value. On the other hand, this plays against Target, as they're not as strongly positioned on price/value and have more of a product design and service orientation."

Additionally, the survey finds that consumers are shifting away from specialty stores like American Eagle and Banana Republic to larger, multi-line stores like Kohl's and JC Penney, where consumers purchase more of the items they want and need. "Consumers are a very harried today," said Crawford. "We need to 'chore-stack.' For instance, shopping at a department store or mass merchant saves a consumer time over going to several specialty stores to buy similar items."

Another, accelerating trend uncovered in the survey is a growing acceptance by consumers of store brands in the U.S. "Store brands are gaining ground like they never have in this country and can command a lot of aspiration significance with consumers, with JC Penney's house brands being a good example," said Matt Katz, another managing director at AlixPartners and also an expert in retail. "In Europe, store brands represent 60 to 70 percent of sales. This survey shows that some of U.S. consumers' negative feelings about store brands are finally starting to dissipate."

The survey canvassed consumers in 13 major retail categories: book stores, clothing stores, club stores, convenience stores, department stores, discount (dollar) stores, do-it-yourself stores, drug stores, electronics stores, grocery stores, mass-merchandise stores, office supply stores and sporting goods stores. Other highlights include:

In the clothing category, the survey shows that consumer sentiment toward Gap (GPS), Old Navy, Banana Republic, American Eagle (AEOS) now falls below that of major department stores such as Kohl's (KSS), JC Penney (JCP), Macy's, Sears (SHLD), Dillard's (DDS) and Nordstrom (JWN).

In the club category, the survey uncovers that Sam's and Costco are in a virtual tie in terms of popularity, and that BJ's has made tremendous strides in customer satisfaction over the last 24 months.

In the discount category, Dollar Tree (DLTR) made a big jump up in consumer popularity versus rivals like Dollar General (DG) and 99 Cent Store, while Family Dollar (FDO) went in the other direction.

In the do-it-yourself category, consumers see Home Depot (HD) earning back its product lead, despite tough competition from Lowe's (LOW), while Ace Hardware made big strides in both product and price.

Among electronics retailers such as Best Buy (BBY), Circuit City (CC), Radio Shack (RSH), Fry's and CompUSA, the survey shows Best Buy as pulling even further ahead of Circuit City, which stumbled badly among consumers in the polling. The survey also shows a strong positive trend for Radio Shack.

In office supplies, the survey examined the strengths and weaknesses of Staples (SPLS), Office Depot (ODP) and Office Max (OMX), with Staples clearly establishing itself as the market leader while Office Max's numbers fell off.

In the drug segment, the survey also reveals that while Walgreens is still faring very well with consumers in terms of popularity, CVS has narrowed the gap dramatically in the past 24 months, while Rite-Aid has made little progress.

AlixPartners today also released European versions of its 2008 AlixPartners Consumer Sentiment Index(SM) which surveyed more than 5,000 consumers France, Germany, Italy, Spain and the United Kingdom. See separate releases.

About AlixPartners

AlixPartners LLP is a global consulting, turnaround and financial-advisory services firm, with offices in Chicago, Dallas, Detroit, Dusseldorf, London, Los Angeles, Milan, Munich, New York, Paris, San Francisco, Shanghai and Tokyo. It serves a wide array of clients, including corporations, private-equity and hedge funds, and financial institutions. The firm is on the Web at www.alixpartners.com.

Contact Information

  • Contacts:
    Meir Kahtan
    (Meir Kahtan Public Relations, LLC)
    +1-212-699-6065
    Email Contact

    Tim Yost
    (AlixPartners)
    +1-248-204-8689