How fast can you re-train a consumer mindset?

Last year, deep discounts were available almost everywhere, including most luxury retail stores. At the time, merchants knew they were taking a calculated risk: If an item is promoted as “on sale” for a long period of time, it’s not really a special discount at all… but a new everyday low price. Many retailers had little choice; the Great Recession hit fast and hard enough that many business categories were stunned, including luxury retail.

In yesterday’s New York Times, there is a story about the strategy many luxury retailers are pinning their hopes on for the holiday season of 2009: Scarcity. Last year, they had a lot of inventory when the glitz hit the fan. This year, many luxury stores have kept inventories lean—even at the risk of running short of some goods—hoping that the threat of missing-out on popular items might inspire shoppers to pay closer-to-full price. (See the NY Times story here.)

Implications: Forgive the longer-than-usual analysis I’ll offer here, but there are a lot of moving parts to this issue.

The recession was officially announced on 12/1/08, and when the announcement was made, economists indicated that we had indeed been in recession for about a year. It may have taken the experts that long to figure out there was a problem… but the consumers who live on Elm Street sensed a problem far earlier, tightening their wallets by early- to mid-2007. Retailers noticed a shift in the economy, too… and in response, many began changing their tactics to woo ever-more-elusive shoppers. Often, those tactics involved some kind of a discount.

Think about that. For nearly three years now, a host of retailers have been training people of all kinds—including luxury customers—to not buy at the regular price. How quickly do you think that can be undone? Do you think price sensitivity can be unlearned in a single season, or will it take a while?

A good friend caught me off-guard, recently, while explaining the great deal she got on an item she bought at a major department store. I thought she was simply going to brag about getting the item at 60% off. But instead, she expressed anxiety… and posited this question: “If they can afford to sell it at that price… just think how many years I spent getting gouged at the regular price!”

Of course, that is an over-simplified analysis of the experience. There are matters of floor planning, carrying costs and overhead which drive most retailers’ decisions about when to offer discounts, even if it means losing money on an item. But it’s not the consumer’s job to understand how retailers think. It’s the other way around.

While the luxury customer might be quite different than a regular shopper (in socio-economic terms), the idea that “it’s fashionable to be frugal” is very widespread right now. Rest assured that during the first quarter of 2010 (and maybe sooner), lots of people will be using hindsight to get a better picture of how the recent recession has impacted consumer behavior… and I’ll be among those people.

Have consumers learned there are a lot of things they can do without? Or will “pent-up demand” drive them to splurge on goods they haven’t been able to enjoy for a while? Will this semi-artificial scarcity drive people to pay full price? Is there a risk that the manufacturers of luxury goods will turn to alternate (even discount) retail outlets—instead of the luxury stores—out of desperation to move product? Or will alternate manufacturers come-up with even more and better "knock-offs” that can satisfy the consumer… at prices lower than the real thing? Or, is the much-heralded “experience” of shopping at a luxury retail store sufficient to justify the higher price?

Thankfully, it is not my job to have all the answers… just good questions.

[See also: “Selling upscale when so many people have scaled back,” 10/13/09, and “Saving on one thing to subsidize another,” 11/5/09.]

Mike Anderson