As expected, the back-to-school season has been lackluster at best. Demand is low and variable, leaving some stores over-merchandised and others paradoxically out of stock. As retailers look to markdowns and promotions to hit their projections, consumer insights can help guide the way. In BIGresearch’s 2009 back-to-school survey of 1,300 parents, Kurt Salmon found that simple demographic criteria can predict consumers’ paths to saving money, which greatly enhances the effectiveness of retailers’ strategies.

The methodology is direct: find consumer segments that are reacting differently to the economy and adjust for them. For example, New England shoppers plan to increase promotional shopping 17% less than shoppers in the rest of the United States, so retailers should push markdowns back by a week in New England stores. Parents with annual incomes under $50K demonstrate a 50% higher tendency to increase private-label purchases than wealthier parents, so retailers should highlight private-label products more aggressively in areas with a lower average income.

Category-specific spending plans also give insight to consumer behavior. Parents making over $100K plan to decrease their footwear spending 8% less than parents making under $100K, and parents over 35 years old plan to decrease footwear spending 13% less than parents under 35. Armed with this knowledge, a footwear retailer could offer fewer discounts in suburban areas with high average age and income to more effectively match demand.

The five most-cited strategies that parents will employ during the back-to-school season should come as little surprise: shopping promotions, increasing comparative shopping with print ads, increased private-label purchases, increased coupon use and making do with last year’s school items.

But understanding the degrees by which different demographics vary in spending and saving behavior can yield simple, localized strategies that save resources. With planned expenditures down 10% overall, and as much as 15% in some categories, adjustments like these are needed to lessen the blow.

These simple initiatives can have a tangible impact on margins. In a basic example, consider a 1,000-store specialty apparel retailer with 200 of its stores in New England. If the chain took this article’s advice and pushed back the markdown schedule for those 200 stores by one week, approximately 3% more product would be sold at full price. This would yield a gross margin improvement of 50 bps—a significant result for a slight shift in strategy.

Consumers’ varying reactions to the back-to-school season have shown that in an environment where retailers are expecting flat earnings for the foreseeable future, the opportunities to localize marketing, pricing and merchandising strategies are too lucrative to be ignored. Rigorous, ongoing collection and analysis of consumer insights through POS data, consumer research and demographic databases can provide retailers the leg up they need to prepare for the upcoming holiday season.

Kurt Salmon drew these conclusions in partnership with BIGresearch, a consumer intelligence firm.

30 September 2009