Though a decade has passed, the recession of 2008-09 offers a perennial lesson to retailers–shoppers have choices. Marketing Professor Chaoqun Chen analyzed how consumers shop around various retail formats in her recent paper “Competition Among Retail Formats.” Her findings uncovered truths about how consumers from different income levels adjusted to a new normal in their weekly shopping treks.
Grocery stores have been the dominant retail format for food and related items for decades, the research noted. Households form their impressions about retail format attributes over a long period and their impressions are slightly sticky. In general, retail formats compete for expenditure share, not for consumers – a distinguishing factor in her research.
“At the start of the Great Recession in 2008, consumers changed the allocation of their budgets among retail formats,” Chen said. From 2004 to 2007, discount stores such as Target and Walmart grew their market share substantially. However, in 2008, at the beginning of the Great Recession, discounters began to lose share to competing formats like membership warehouse clubs such as Costco and Sam’s Club, and to dollar stores. Surprisingly, Chen found that despite very large income changes for some consumers, large changes in overall spending did not occur.
During the recession, retailers could have lowered prices but they did not. Chen’s research indicated that lowering price may increase demand but lowers margins, thus increasing market share at the expense of profitability. Price competition is a risky path at the level of retail formats, she concluded.
More recently, trends show that discount stores are launching new sub-formats, smaller stores in urban areas with limited assortments. Chen notes that offering a small-size format is relatively more effective than price competition for discount stores. “Retail store format competition is not going away,” concluded Chen. “There is no single format that dominates the others.”