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Faced with a wheezing economy that can't seem to heal, big U.S. retailers like Target Corp. (NYSE: TGT) and Office Depot Inc. (NYSE: ODP) are creating their own retail stimulus measures to lure hesitant shoppers back into stores.
Through such tactics as loan programs, credit card rebates and gift card giveaways, top retail chains are rolling out promotional strategies, hoping to break consumers out of their anti-spending doldrums.
"A lot of the government programs have come to an end," David Bassuk, an expert from financial consultancy AlixPartners, told The New York Times. "So retailers are taking it upon themselves to do everything they can to get the consumer to spend, even opening up their wallets to give money back to the consumer."
Sam's Club is taking an unusual approach: It's offering loans of $5,000 to $25,000 to its members, backed by the Small Business Administration. Superior Financial Group is managing the loans and will give Sam's members a $100 discount on the loan application fee and lower interest rates.
Staples Inc. (Nasdaq: SPLS) is also aiming to give customers what they need: spending power. When shoppers buy a backpack during back-to-school shopping, Staples will give them a gift card worth as much as the backpack's price.
"On that particular one we probably don't make money, but in general what we're hoping to do is get customers into our stores, and then buy everything else they need," Demos Parneros, Staples' president of U.S. stores, told The Times.
Lately there's been a lot of cause for consumer caution. A weak unemployment report released earlier this month showed that the private sector only grew by 83,000 jobs, and 652,000 discouraged job seekers gave up their search for work – which means they'll be living on super-strict budgets.
Other still-employed consumers have disposable cash – but are afraid to part with it. Personal income has risen for three straight months and savings rates are high, meaning some people and businesses are sitting on cash piles as a safety measure.
If this retailing reticence continues, it could have major implications for the broader economy, which depends on consumer spending for 70% of its growth. In the meantime, however, it's the retail sector that's feeling the biggest squeeze.
While the promotions aren't necessarily moneymakers, they are intended to relax customers into spending more freely – and hopefully direct the spending at that store. A Sam's Club survey showed that small-business customers felt they just didn't have the money to be shopping like they wanted to.
But retailers run the risk of creating programs that shoppers can take advantage of without spending more than they normally would, defeating the promotion's purpose and leaving the retail sector struggling.
This prompted last week's installment of Money Morning Question of the Week: Are these new retailer-created discounts and promotions grabbing your attention? Will they induce you to spend more? Do you think there are incredible opportunities for shoppers right now, or are stores trying to push sales that consumers simply can't afford?
The following is a collection of reader responses on these new stimulus measures, as well as other comments regarding the retail sector and spending as means to fuel economic recovery.
Survival of the Most Appreciative
During the Internet boom, retailers failed to treat customers as if they were a necessary part of the success equation, by burning them with abusive policies. For instance, charging restocking (some call them convenience) fees on returns of faulty products, or automatically signing customers up for "programs" of insurance, warranties, etc. without customer agreement that just magically appears on the credit card every month. Or, sending customers bills years later because "internal audits" revealed some unpaid amounts for which there is no documentation; abusive contract terms, rebates that never arrive, unsubstantiated threats to destroy credit scores, etc. Customer fees, account fees, customer service fees, billing fees, cancellation fees, etc. Large shipping charges for items that are back-ordered for undetermined periods of time. The list of consumer abuse out there goes on and on. Add that to the inability to talk to a customer service representative that has an understanding of the English language, or one at all, and the disappearing consumer should not really be a surprise.
Retailers that engaged in gouging have seen the biggest drops in their customer base. Now they are rolling out "membership discounts" and club cards and easy credit, and many other programs to lure buyers back, without success. These retailers have not only lost the trust of the customer, but they have treated them like idiots, and that results in very negative "word of mouth advertising." You can shear a sheep every year, but only eat it once.
As an example, I bought a set of $40 wheel covers at AutoZone (NYSE: AZO) and tried to do an even exchange for a different size two hours later and was told that it would cost me a $10 "convenience fee," a policy that is undisclosed prior to purchase. I returned their preferred buyer card, got my $30 refund, and went to the local auto parts store two blocks away to buy the right size wheel covers for the same price. There is nothing they can offer that will ever bring me through their doors again….except a bankruptcy liquidation sale.
Here's another: I moved and took the new customer offer from a phone and Internet provider. I called for three months to complain that I didn't have Internet, for which I was billed. The customer service department never took action or offered to help, but simply said, "You should." I cancelled and went to somebody else. This provider called me with a nasty attitude to tell me how they were going to really screw me with early cancellation fees. My response was it was a lot better than going forever without Internet for which I was being billed. Ever since, they send offers monthly to try to get me back. So, I'm not surprised to see them on the list of corporate bankruptcies.
The (very) few retailers that have chosen to focus more energy toward making customers feel appreciated will not only survive, but will expand their customer base, during this protracted recession.
My favorite is JC Penney (NYSE: JCP). This business has created a culture of customer respect that is unmatched in the retail world. For my retail dollars, and investing dollars, there is no comparison.
– Teri L.
Shop 'til You Recover
Spend some money. Get this economy going.
– Joyce D.
Sales Go Global
In Ireland, yes they are [persuading me to spend]. Great bargains around – and they can haggle, too!
But…double dip [recession] on the way.
– David B.
Haggle? Even at 90% I don't think it's a risk well taken (buying what you don't really need) considering the clearly detuned world economy. Stimulus is only stretching time before the big crunch. Parting of wealth is necessary.
Where is Robin Hood?
– John C.
I've only bought what I absolutely needed for my business, and letting everything else slide.
– Betty H.
No More Spending
I guess all we have to do is spend, spend and spend and all of our problems will go away. Let's bail out the states, too. I know, let's just give everyone lifetime unemployment benefits if that is what it takes to help the economy.
[Editor's Note: Thanks to all who responded to our previous installment of the Question of the Week feature regarding retail stimulus measures. Be sure to answer next week's question: Have you been monitoring your credit score? With loans now tougher to get, how are you changing your finances? Do you have a healthy credit score, or have you done some credit score damage you'll need to repair? What moves are you making, or how are you restructuring your personal or household finances since the financial meltdown? How important do you think it is to have a healthy credit score?
Send your answers to firstname.lastname@example.org!
Is there a topic you want to see covered as a Question of the Week feature? Then let us know by e-mailing Money Morning at email@example.com. Make sure to reference "question of the week suggestion" in the subject line. We reserve the right to edit responses for length, grammar and clarity.
Thanks to everyone who took the time to participate – via e-mail or by posting their comments directly on the Money Morning Web site.]
News and Related Story Links:
- The New York Times:
Retailers Devise Novel Ways to Revive Sales
- Money Morning:
Unemployment Report Shows Sluggish Recovery Will Take Years to Replace Jobs Lost in Great Recession
May sales suggest recovery on track, albeit uneven
- Money Morning News Archive:
Question of the Week Feature