Last year’s recession is changing the way consumers shop. And the retail real estate balance.

In the heart of Tokyo’s Ginza, the unthinkable has happened. A multi-storey Gucci store anchoring the giant Matsuzakaya department store has gone.

In its place, a monument to the new frontier of modern retailing, a Forever XXI store. Fast fashion – the unkind amongst us would describe it as disposable fashion – has taken the very same space as a super luxury brand. Where two years ago a scattering of customers would browse amongst handbags and accessories with $1000 price tags, today literally hundreds of predominantly young women are browsing rack beyond rack of fast fashion from one of the world’s fastest-growing apparel retailing brands.

Without doubt there are as many if not more customers in this narrow five-storey temple as in the entire remainder of the department store, accessible from every level of Forever XXI.

The space is bright, hip and visually appealing, the music fresh and catchy, the staff dart about the store in a frenzy to match the customers. But that’s overshadowed by the symbolic nature of this store’s existence: it’s living, pumping proof of consumers’ massive mood change from extravagance to frugality being prudent/modest, from posh to practical.

And it’s not an isolated example. In another nearby department store, a large Louis Vuitton store is to close soon. Its replacement: a Gap store. At Primark in Oxford St, London, at Old Navy in Soho New York, people are still joining long, snaking queues to buy cheap T-shirts, jeans and dresses. In Barcelona, with unemployment at 20 per cent and with an economy supposedly on the brink, the streets are crowded with shoppers, tourists and locals alike, thronging local brands like Zara, Pull & Bear and Mango, and their off-shore rivals like H&M.

People are still there. But they’re looking for value. And the definition of ‘value’ differs from one consumer to the next. Oh the confusion…

Gwen Morrison, CEO The Americas and Australia with The Store, ad agency WPP’s gateway to retail specialist groups around the world, has a gift for succinctness. “There has been a shift,” she tells the group in Manhattan. “Even though (consumers) are coming back buying, there’s a shift in the concept of value. People want to see high quality at a low price – and they want experience. Competitors from all segments of retailing are competing for the same sweet spot… where high quality and low price converge.” Morrison says the impact can be seen across the entire retail spectrum, not just with Primark, the UK fast fashion chain most often cited.

From fast food chain McDonald’s, whose advertising message was ‘be smart, why spend more than you have to?’ in promoting the value of its coffee against a cup of Starbucks. ‘Four bucks is dumb’ screamed billboards. But higher end brands were clambering onto the bandwagon as well: Guess unveiled a new concept G by Guess, often located in close proximity to H&M stores in US malls. Coach unveiled a lower brand Puppy.

Morrison cites research showing two in three US shoppers changed their behaviour during the recession – 25 per cent significantly, 42 per cent “somewhat”.

Most tellingly, 41 per cent said they now buy “only things I truly need” and the same percentage take advantage of good deals and sales. More consumers than ever are buying home brands.

“We are seeing the emergence of a new set of values,” explains Morrison. “It has not been about frugality, but rather about risk and confidence. How do I feel about being smart and still treat myself? No-one enjoys being frugal.”

Consumer behaviour prerecession, she says, was characterised by easy credit, easy money, “easy living”.

“These have been exposed as frauds. We know that now, so we’re not going to make dumb choices but we are (still) going to want to live a little.

When the recession hit, consumers went from a mindset from ‘what credit card should I use to use to pay for this?’ to ‘what should I buy?’.

“This was paradigm shift in consumer behaviour; they were really choosing what items to bring into their home.”

Retailers responded by doing anything they could to get consumers to think their store offered the best price. The flood of discounting and offers like ‘buy one, get one free’ created so much confusion in the marketplace, she says, shoppers didn’t know what the price was in the first place.

Now, as the recessionary dust cloud settles, consumers are more frugal.

“Frugality is a coping mechanism, not an aspiration. Consumer desire is not about doing without.”

They’re showing signs of shifting gear. In August 2008, research showed 42 per cent were buying fewer things. That’s fallen to 30 per cent this year.

But there’s nothing black and white about buying behaviour. Regardless of which retail market you look at, the frugality has been far from blanket.

Globe-trotter Howard Saunders, a Londoner who spends much of his life reviewing new retail stores for his consultancy Echochamber, cautions there are still exceptions to the value rule. While people might be indulging less, they’re still indulging.

“Underneath the statistics are some interesting stores – some businesses are thriving and some are dying. What is it that makes people want to queue? In a recession we presumably only buy things we really need – like cup cakes, like (Ugg) boots that make you look like an idiot, like ripped t-shirts (Hollister), like Chanel handbags. Even in times of recession brands give us the must do’s and place to be – the Champagne bar at Westfield London is very busy.”

In fact, it’s about to be expanded. Morrison echoes Saunders’ observation.

“All during the recessionary period, the lines to get iPhones and now the iPad – that’s really testimonial: we want things to be new. Spending on technology is up.”

Ironic, then, that while some stores were selling products in brown bags to consumers who did not want to be seen to be splurging during a recession, Apple was turning record profits and has just become the world’s most valuable technology company, overtaking Microsoft on share market value.

The economic downturn has helped many consumers to review what is important, says Morrison. “Sales and coupons are continuing to motivate shoppers. We’re still seeing pretty high numbers of people seeking deals.”

During recession there was rapid trading down; Dollar stores and Walmart boomed, luxury was out, private label was in. Post-recession, this has evolved into ‘reasoned trading down’ – consumers trade down in some areas to allow trading up, or maintaining spending, in others.

Pragmatic consumers are “sick and tired of sacrificing” as the recession fades, but they’re still facing balancing acts: They’re spending more on quality takeaways or prepared meals, taking the dining out experience home. It’s a decision between ‘good enough versus the very best’, she says.

Japan, too, is emerging from its economic downturn. Christopher Rees, senior trade commissioner with Austrade, based in Osaka, says the Japanese recessionary experience was different.

“The US had a financial crisis, Japan did not. No banks went under, there were no massive bankruptcies, no one had to be bailed out except two companies which were going to need it whether or not the crisis came along – JAL and Pioneer.” Rees says domestic demand remains sluggish and consumer confidence has really not clicked back in yet.

“There’s been a move away from high end purchases to value retailing. You can’t stop Japanese consumers from shopping, but… they’ve woken up. They’re not being told what’s value any more – they’re determining that for themselves.”

The luxury sector has felt it harder than anyone, although the Japanese are still very brandoriented.

Louis Vuitton enjoys a brand penetration of about 30 per cent, well above France’s eight per cent.

But Rees says most of those big brands have experienced a decreases in sales of between 30 and 50 per cent over the last two years. Perhaps Morrison has the right prescription for retailers in all three countries: be positive about your brand, your offer and your values. “Optimism is the new currency to engage shoppers moving forward.

‘It’s trendy to be thrifty’…

Consumers of old used to be careless, observes Neil Saunders of London-based retail research consultancy Verdict.

“We were very impulse based. We didn’t care about how much we were spending. Nowadays we’re more thrifty. A lot of people won’t spend even when they
do have the money because they don’t know what will happen over the next six months or so.

“Because that mindset has changed it’s… actually become trendy to be thrifty.”

That – combined with a boost in savings – is having considerable impact on UK retailers who are left to fight for a share of a smaller total spend.

Saunders says total UK consumer debt soared from £562 billion in 1998 to £1.4096 trillion in 2008. In the same period, the share of income consumers saved fell from seven per cent to less than one per cent. Last year, with the recession in full swing in Europe, total debt rose marginally to £1.459 trillion – but the savings ratio soared to 9.2 per cent.

“That’s damaging for retail. Although it’s quite bright for people to save, the last thing a retailer wants to hear is ‘I’m not going to buy that product, I’m going to save money’.”

Retailers must respond, he says, by offering value. “Consumers want value; price is a little less important.”

Verdict’s research shows as the recession eases, people are placing less emphasis on price and more on quality. “People are saying it’s not just about price, it’s about value. People want very good value but it’s not as simple as just being thrifty because they actually want very good prices with something else – like quality or service.

“It’s about… giving a solid value proposition. Players that just focused on price alone haven’t done well last year. Asda, for example, did very well during the recession, but now it’s weaker because it’s still got the price point, but not the value.”

Rival Waitrose, a more upmarket grocery retailer serving a more affluent demographic, has had more success. It changed its positioning during the recession, dropping the strap line that everyone deserves quality and instead pushing its Essentials range.

“They’re saying it’s quality you’d expect at prices you wouldn’t. They found customers were going to them for ‘treat items’ but for everyday items like washing powder and mainstream vegetables they were going to other shops to save money. So Waitrose introduced lots of every day prices on things that were simple everyday purchases.”

Failing to recognise the trend led to the demise of iconic UK retailer Woolworths a year ago.

“One of the reasons shops have failed is they’re not delivering a value proposition. That’s not good enough because there’s a lot of choice. If you don’t deliver what consumers want they’ll simply go elsewhere. You can’t survive by just being ‘OK’.”

Saunders says consumers have become jaded. “We’ve shopped a lot over the last 10 years. Retailers have to reinvent themselves constantly and they need to give consumers a reason to visit their stores and to buy.

That’s the problem with Woolworths and Asda – they haven’t moved on. Why would you want to go back there?

“Those who survive and do well in retail are going to be the ones who introduce innovation and newness.” Saunders says retailers need to exercise fast stock turnaround and regularly change the store’s layout. “Zara is very successful at that – they don’t have one or two seasons a year, its product changes on a weekly basis. Fast fashion is all about fast turnaround. It gets people in.”

Saunders predicts a movement of spending from retailing to services over the next decade. Music, video and books are easy examples to pick: “Instead of buying, consumers will subscribe to a service that lets them listen (or read or view) on demand.”

He says value retailers are no longer showing the same levels of growth as during the recession.

“We have come out of recession but a lot of things that were in recession will be with us for a while. Corporate insolvencies, consumer bad debt, unemployment, rebuilding of household balance sheets.

It will be the middle part of 2012 before that goes back to normal levels.

“It’s impossible to go back to the old model of spending. Retail spending grew £93.8 billion in the last 10 years but £42.4 billion of that was from people putting it on credit cards or remortgaging their houses.

What’s absolutely certain is that credit card debt is not going to be there. Credit card companies don’t want to offer the debt, consumers don’t want to take the credit.

“Things have changed in retail probably for good. “The mindset has changed from ‘I deserve it, I must have it, I will buy it’ to ‘I really shouldn’t, I don’t need it, I’ll have a think about it’.

“Retailers have to think about this new mindset and ask ‘how do I persuade people they need to buy?’” Apple has achieved this, he says. No-one needs an iPad, but 2 million of them were sold in the first two months on the market in the US. And at the time of writing, 600,000 new generation iPhone 4s were ordered in the US within less than a day – so many that telco partner AT&T had to suspend the ordering system due to supply concerns.

“I don’t need an iPad it’s a bit of a gimmick. But I really need one,” confesses Saunders. He finishes his assessment on a positive note, however.

“Although it’s difficult and much more challenging, there’s still an array of opportunities out there. Retail will still be a massive industry, and you can still do very well.