[13 November 2008]
When business journalists mention the flight to quality, they usually mean investors shedding risky investments and buying government Treasurys, blue-chip stocks, gold ingots. But in a recession (consumer spending was down 3.1 percent last quarter, which is an astonishingly high number), consumers may make their own humble flight to quality as well. I was stuck by a line from this Economist article about American retailers’ coming struggles: “Among deep discounters, too, such as Dollar General and Dollar Tree, which have benefited from shoppers looking for the best possible value, the leaders are gaining at the expense of laggards. Even dollar stores are finding life harder, as customers are somehow finding their way to goods that yield their sellers the very lowest profit margins.” The word “somehow” intrigues me in that last sentence—the lowest profit margins probably come from the goods that give consumers the most value, and when their minds are focused by hard times, they can perhaps ferret out that value more ably. That’s a tall assumption—that use value correlates negatively with profit margin—but I’m going to go with it to indulge in some speculation.
It seems to me that in the 99-cent store, where there are no coherent efforts at marketing, branding, or promotion, consumers are at less of a disadvantage; some of the information asymmetries that marketing systematically tries to create are absent. And distortions of use value created by price signals are muted, since everything is priced the same. So without all that static, consumers can perceive the actual usefulness of goods more clearly. But in order for that to happen, consumers must overcome the initial disorientation that comes with shopping in such an arid retail environment. Marketing and branding, etc., all ultimately save us time and make our shopping at once more efficient and more pleasurable—we can fly into fantasy thanks to the narratives advertising has enchanted the goods with. At the 99-cent store, goods are disenchanted and bewildering in their profusion. We are forced into a different mind-set when we go there—a skeptical, distrustful attitude that has us interrogating the goods rather than open to being seduced by them. This is the opposite of what profit-seeking retailers generally try to accomplish: this McKinsey report summarizes what the typical goal is:
Retailers with good financial health in mature industries can also go on the offensive, taking actions to quickly grow revenue by driving traffic into stores through more compelling offers and ensuring that staff is ready on the floor for the assisted sale. For example, a North American soft goods retailer has reversed declining sales, improved customer satisfaction, and increased the frequency and average size of transactions by focusing on eliminating out-of-stocks, raising the effectiveness of front-line salespeople, and making small store-layout changes that help customers find the goods they want.
It’s worth remembering that these efforts improve the retailers’ bottom line, not the consumers’. (It has been Best Buy’s strategy in crushing Circuit City, which announced it was closing The consumers spend extra for the accessibility, not for quality; if they are trained by hard times to eschew that, then they can save what the ordinarily pay to spruce up the shopping experience while still satisfying their “needs”—that is, if you accept that there is such a thing as the difference between wants and needs.