Episode 15: Post-pandemic, US shopper behaviour is changing dramatically. Here’s how.

As US consumer shopping patterns change – dramatically in some categories – retailers need to be more nimble to recognise the trends and react to them. R.J. Hottovy, head of analytical research at Placer.ai, warns if they don't, they risk losing sales to rivals. 

Transcript

Intro:
Coming up, on this episode of Retail Untangled...

There really is no new normal. I think we keep seeing year after year some other disruption or some other major shift in behaviour, some other macro trend that really impacts consumers. And you really have to stay nimble. 

Welcome to Retail Untangled. My name is Amie Later and this is the podcast where we speak to retail industry experts and find our business hacks to help you succeed. You won't find these gems anywhere else and we have some superb stories from the coal face as well as helicopter insights from retail industry leaders. This week we're bringing you insights live from Shop Talk Fall in Chicago.

Amie:

Today we're hitting the ground running with R.J. Hottovy, the head of analytical research at Placer.ai, a leading location intelligence platform. R.J., we've seen a lot of evolution in the post-pandemic retail landscape. The customer journey across online and bricks and mortar stores has shifted dramatically and the picture looks different in each category. 

Given the conversations here at Shop Talk are all about building and growing efficient retail businesses, I thought we'd do a quick speed round so you can give us some data-driven insights into what retailers need to know to succeed. Welcome. 

R.J.:

Thank you very much. 

Amie:

Thank you. Let's start with groceries. How have consumer habits shifted in this category? 

R.J.:

It's a great place to start just because I think out of all the categories in retail, perhaps we've seen the most change in consumer behaviour category itself. I think we can trace a lot of it back to the big shock to system we had during the COVID period, lot of people shifting from bricks and mortar to online and then shifting back to bricks and mortar when there was inconvenient pickup windows, delivery fees, all these other things that made it little bit more prohibitive from making online grocery purchases. At the same time, 2022, 2023, saw inflation, food at home inflation really started to become a bigger factor in consumers making grocery purchases. 

And what we saw is that as the inflation went up consumers wanted to shop around to a wider number of locations to get the best deals. We're looking at our data, it was interesting. 2023 ended up being the year that a lot of consumers re-trained themselves on filling up their shopping basket. They're not necessarily buying more products. It's just they're shopping around a wider number of locations to find it. So last year they were going to Aldi for the first time maybe. They were going to Trader Joe's. They were re-discovering Grocery Outlet. And then this year they've really kind of solidified that new routine.

And we still see them shopping a wider number of locations, but they know where to get it. So we've got a situation where people are shopping a wider number of locations, they're going to go to their grocery store, their traditional grocery store for certain things, but maybe go to a discount grocery store for other things. Maybe a good dollar store for other things. Maybe even convenience stores. And so we see this wider range of locations that they're shopping at. Now what that's done is actually put downward pressure on the average spend per visit. They're buying less units per transaction. They're also spending less time in the store.

We see dwell time has come down, particularly year over year, that routine has kind of kicked in for lot of consumers. And so now you've got a situation where it's a very deal-driven consumer, they know what they want, they're spending less time in the store. So you as a retailer in this category also have to be aware that consumers are very focused on that deal. You have to break into that new routine that they've established in 2023. They're going to be spending less time in the store. So you know you have to get your right away with whatever kind of promotion or new product you're launching.

In a lot of ways. become a more difficult consumer to crack as they kind of solidify this new deal driven routine. 

Amie:

Okay, interested in how this shifts on to super stores, what's changing and how can retailers use this to their competitive advantage in that space? 

R.J.:

Yeah, super stores is another category we've actually seen an increase in the overall number of visits.

The number of of stores remain generally relatively flat, at least compared to the growth that we've seen in value grocery and dollar stores. But this is another one where I think it's a good example for grocers to follow in terms of how to crack that audience. We started to see the rollbacks from Walmart and Target and Costco generally pushing back on its vendors to keep pricing where it needed to be. And all of sudden we started to see them start to claw back some of that lost visitation share that we'd seen to Aldi and others this past year. Really about I would say June-July was really May, June-July was when the time frame we started to see a real shift to the super stores and again very price-sensitive consumer. They saw those rollbacks were really attracted by it. At same time too some really innovative marketing too, I think that the super stores. you know in terms of you know other food and essential retailers looking to maybe recapture some of that or you know capitalising some of the behaviour. I think the super stores have really proved to be a pretty good model on that front.

Amie:

Awesome. And so now probably a little bit of a, you know, change in pace. The non-discretionary sector. What are the key trends in this category? 

R.J.:

Yeah, that's another one too. So if we look at across non-discretionary as a whole, I think it's interesting because we talked about super stores and given their size and given their sway, that has been really disruptive to a lot of other categories. Dollar stores really had a moment in the sun, 2022, 2023, early 2024, but we started perhaps they've reached the point of saturation. On a comparable visit trend, we're starting to see things go negative. On a year-over-year basis, it's still off because of just the sheer amount of stores that dollar stores have opened up. But that's been an area where I think it's going to get a lot more competitive. I think really the other thing too is that low prices aren't everything too. I think there's been underinvestment in some of these dollar stores and discount stores. And I think that's something that needs to probably be addressed by some of these retailers. While we're on the topic of non-discretionary, think drug stores has also been another category that's been severely disrupted in these last couple years. 

A lot of these chains probably did over expand. They probably had too many locations in certain markets. That's why we're starting to see a pullback in store closures across the drug store space. But what's been interesting to us when we look at visitation trends, say Walgreens or CVS closes a store in a certain market. Maybe that market seemed migratory away, that population's smaller. They're transferring prescriptions to another store, but ultimately I think those visits are going to more the super stores, the grocery, and in some cases warehouse clubs. So it's really interesting to kind of see where that market share shifted and you know even though they're transferring their customers prescriptions to another store, it's not always ending up that's where the visits end up. So I think the other non-descriptionary categories outside of value grocery, warehouse clubs, and super stores are in a difficult position right now. Not only bricks and mortar but also online. Amazon's got their site set on one of those categories as well.

Amie:

Makes sense. turning to apparel, is spending slowing down? 

R.J.:

It's interesting, we've actually started to see a little bit of a pickup in apparel. I would say beauty, which I know is a category we're to want to talk about too here, but beauty kind of had their moment in 2022, 2023.

A lot of people in the pandemic, you're holed up for a couple of years, you want to come out, make yourself reemerge in public society. And, you know, obviously there's a lot of events, a lot of experiences that people, you know, were taking part in. And the derivative of that is that now people want to look their best. And so you saw really big, you know, not only unit growth from the beauty stores, but a lot more visits per unit, per store. They were seeing a much wider trade area, with a lot of younger customers coming into the beauty stores. 

And so I think that started to slow down, but also now we kind of see that shift over to the apparel side of the business. And if you look at kind of the apparel overall, I would say it's probably flat to slightly down, but it's the retailers that are kind of making, you know, sell more unique kinds of differentiated apparel that are really kind of standing out. So like Anthropology or Free People that allow you to kind of build your own identity with apparel. And those are the ones that are kind of standing out. So it's almost kind of like it shifted a bit from this idea that I want to use the makeup, cosmetics, and other beauty products to differentiate yourself. We sort of see that in the apparel space. So there also, think, is an element to a little bit of return to work and people wanting a new wardrobe as well. But, your apparel is kind of a situation where kind of winners and losers are starting to emerge. And it's really the more idiosyncratic retailers that are kind of jumping out right now. 

Amie:

OK, and back to beauty. What has sort of changed in your perspective since the pandemic?

R.J.:

Yeah, there's a lot of things. This is another category that's seen a lot of growth, a lot of disruption. Really, we've seen two players emerge above all, and I think that's pretty easy to figure out. It's Ulta and Sephora. They've done a great job, not only with their own brands, but they've also obviously had the partnerships with Target, with Ulta, and Sephora, with Kohl's, obviously. And those have been major drivers of growth for both Target and Kohl's at this point. So that's been one major change is that they've kind of really had this successful store-in-store partnership with other brands, but we've started to see them introduce new services, new amenities within the store that's been very powerful, kind of shows that it's not just the product, it's got to be the experience, and I they've done a tremendous job on that front as well. 

So I think that's been one of the big changes. They've also started to move a little bit further away from cities and kind of meet consumers where they were. We saw a lot of migration away from urban markets to suburban and rural, and I think they've done a good job meeting consumers where they want. We are starting to see a little bit of pullback right now. Visitation trends are starting to weaken on a year on year basis but that's on top of such tremendous years in 2022, 2023. 

Amie:

I was going to say is that just getting back to par? 

R.J.:

It's, I mean they're going to be way ahead on a visit per location basis they're going be way ahead of where they were, that's that younger audience coming in that maybe they hadn't attracted before I think a lot of that and you know credit where credit is deserved. mean a group like Ulta has done a wonderful job bringing in more diversity to their product mix which in turn brought in a much more diverse visitor base and you know I think they're a perfect example of what retailers are if you're looking to diversify your customer base, know, it really starts with the product and done a good job. And it's amazing to see the trader shift when you do want such products and really matching their goals going after a more African American, more Latino population and they've done a fantastic job on the front. 

Amie:

Awesome. So final one, home furnishing, one that was undoubtedly big during COVID as well. It was in my house. How's that changed? 

R.J.:

You're exactly right. So we have this group of categories that have a big, big pandemic period. Home furnishing, home improvement, sporting goods, consumer electronics, people making home offices, upgrading their house, doing different things with that. All those really pulled back. We saw that really as probably more of 2021-2022 scenario where visitation trends, there was a pull forward demand and then we saw normalisation. And now we're in a situation where most of those are seeing year over year visitation declines.

There's a couple things going on. We haven't really seen that replacement cycle. Most of those categories we talked about, there's a 3 to 70 replacement cycle. We really haven't quite hit that. We're starting to see a little bit in the consumer electronics department. We're starting see a little bit in the home improvement side. We're starting to see a little bit in certain home furnishing categories like housewares. Part of that's too.

We've seen events become a big driver for visits and holidays and events. maybe you don't need a full furniture set for that, but maybe a house where it's something to do if you're going to be entertaining with people. So that's kind of one of those categories. But what is interesting about this too is that as visits have pulled back, and this is not just home furnishing, but really any of the more cyclical categories, we start to see them shrink the size of their stores, get really strong visitation trends on maybe half, even a third of the square footage that those stores had. So it's interesting to kind of see that their driving just as many visits to these stores, much smaller square footage and really kind of service it more in this hybrid, know, kind of showroom model where, you people come in and see the merchandise but ultimately make the purchase at the store but delivered to the home. So it's been interesting to see and I think we're going to see this downward trend, this consolidation into, you movement to smaller format stores across home furnishing, this kind of showroom effect.

Amie:

Okay, based on your insights across these categories, what's the one overarching takeaway for retailers adapting to this new look retail landscape?

R.J.:

I guess the best advice is that there really is no new normal. I think we keep seeing year after year some other disruption or some other major shift in behaviour, some other macro trend that really impacts consumers. And you really have to stay nimble. I think we're in an environment where you have to move fast, you have to be willing to take some risks, but ultimately at the same time there's a lot of data sources, Placer AI and others that can help you out in terms of new real estate decisions.

In terms of the calculus behind new stores has completely changed. The approach to marketing to your consumers has changed. We see it across so many different categories. The way you analyse and benchmark yourself against not only your direct peers but indirect peers, I think has changed so dramatically. And so I think in this environment that there's so much change taking place, you just need to be ready for it and there's a lot of data out there that can help you out with it as well.

Outro:

A big thank you to R.J. Hottovy from Placer.ai and we hope you enjoyed this episode of Retail Untangled. To hear more insights as they land, feel free to like and subscribe whereve you listen to podcasts.