RIGA - Retailers are weathering a stormy year all around the world, prompting concerns that in the near future the sector will be dominated by a small number of very large market players. According to experts, the Latvian retail industry is feeling the effect of the economic downturn especially severely. With falling consumer purchasing power and diminishing tourism numbers, consumer-oriented product sales continue the downward trend that started in October 2008. In 2009, according to the Latvian Central Statistical Bureau, retail turnover year-on-year was down 23.3 percent in February, 28.8 percent in March, 26.1 percent in April and 25.9 percent in May.
Even the so-called 'lipstick effect,' the notion that during recessions consumers, in particular women, substitute cheap pick-me-up items like lipstick and nail polish for large luxury items, has become ineffective in Latvia. As news agency LETA reported in the beginning of 2009, retail sales of cosmetics in January had decreased by 18.9 percent year-on-year, and indicated a 1.3 percent drop compared to December.
As the year progresses, the economic situation in the country shows few signs of recovery and unemployment figures continue to climb to new heights. "People are in the crisis mood, and this is not a good mood for retailers. You have to work extra hard to keep the business moving," says the convenience store cashier in Cesis, a small town in north-central Latvia.
"We have to watch our expenses like never before. I used to always get lots of candy for my kids when I went food shopping, and I never looked at the prices. Now I have to count every penny, and compare the prices against my budget," admits Aiga Balode, a mother of three. "But it's good, in a way. This situation is teaching my kids responsibility 's they know the real value of money."
"There are lots of stores that are offering great discounts nowadays," says Diana Petersone, who also lives in Cesis. "My family makes special shopping trips to Riga on the weekends. Until recently, I have not had a single designer dress in my wardrobe - now it's full of designer items. Last week, I bought a high-end designer coat for just 40 lats (57 euros), and the original price was over 500 lats!"
Indeed, in 2009 price-cutting in the retail sector in Latvia has been broader and deeper than in previous years as retailers seek to improve cash flow and offload seasonal stock. Many stores started full sales long before the end of the season, which means a higher level of bargains and a steeper level of discounting than ever before. The necessity to move the merchandise and empty the shelves ahead of the autumn translates into great bargains for customers and diminishing profit margins for the retailers.
However, there are a variety of things besides offering discounts that the retailers can do to keep the margins up. For the store owners, this is the best time for renegotiating lease terms in order to reduce the rent, or extend square footage. With the rental prices going down in Riga, as well as in the suburbs, most landlords will make considerable concessions in order to keep their spaces occupied.
It is important to bear in mind that there are a number of things that should be done prior to the sit-down with the landlord. Reviewing the terms and conditions of the current lease, establishing negotiation goals and renegotiation strategies as well as determining if the current site and space meets the retailer's long-term business strategy, are essential to ensure the successful outcome of the negotiations.
If the renegotiation is not successful, looking for a cheaper alternative can save thousands of lats in the long run. This is especially true for the smaller, more flexible retailers which do not have to fear massive relocation costs.
"My clients understand that right now is the time to look for bargains," says the owner of the small clothing outlet in Cesis. "But the retailers can get great deals as well. I have had my store repainted for a quarter of the price that I would usually pay, and as a bonus the firm had the design specialist come by to help me pick the colors."
Taking a proactive position with the players across the entire spectrum of business counterparties and being able to obtain the deals better suited for the retailer's business model is a necessary condition for success in today's Latvia.
Besides optimizing business relationships, current economic situation in the Baltics has served as a powerful stimulus for the retailers to focus on clients' needs. Since the retail business is a consumer-driven business, it is quite obvious that in this sector success emanates from being able to anticipate, identify and satisfy clients' needs in a way that is profitable for the retailer. To quote Helen Dickinson from KPMG, "The customer is, in a very real sense, a stakeholder in every retailer and, in fact, is the key stakeholder."
Considering the abundance of choices that Latvian customers are faced with, both domestically and when traveling abroad, many retailers come to the realization that it's important to connect with clients both on a rational and emotional basis. Price, convenience and accessibility should not serve as substitutes for the ambiance the store is projecting and the level of service that the customer is receiving.
The current economic situation prompts business owners to go that proverbial extra mile to show clients that the retailer is keeping abreast of his or her needs, with the ultimate goal of bringing the level of service to a more personal level. The retailers, especially the ones operating smaller businesses, are coming to the realization that it does not take too much time to get to know the client - while the rewards of doing so are plentiful. Viewing customers as unique individuals rather than members of some monolith never-changing group prompts businesses to structure their whole company around customer relationship management that is used.
Providing adequate training to the sales force and making sure that the staff has a sound knowledge of the product and service as well as understanding of the marketplace is paramount for success in the retail sector. Sales training investments directly correlate with consumer-oriented selling, which in turn positively influence overall sales performance. For instance, instead of trying to push the most expensive item in the store, a consumer-oriented sales person will start with the budget available to the client, inquire about personal habits and preferences, and only then will offer a list of available items to consider. Thus, while forgoing profit maximization in the short-term perspective, he or she will cultivate a client relationship that goes beyond customer service, and ultimately translates into a steady stream of cash going forward.
Answering the question 'who are our customers?' is crucial for cultivating efficient customer relations. Retailers are constantly broadening their client base from 'a customer is anyone who has purchased something from us' to 'a customer is anyone who has ever visited our store; subscribed to our newsletter; put something in the shopping basket, even though they did not end up making a purchase.' Incorporating new target groups into the potential client profile enables retailers to identify multiple customer contact points which can serve as cornerstones for developing effective client access strategy.
The retail industry is very competitive, a large number of start-ups fail within the first five years. One of the keys to keeping the business afloat is maintaining your brand identity and diversifying away from run of the mill product offerings. Carrying selections that are unavailable in the large retail stores, be it natural organic produce or Latvia-made eco-brands of cosmetics will keep the clients interested, and the salespeople busy. It is important to constantly monitor the ever-changing tastes of your client base. There is little loyalty in the retail business, and if the customers do not like your product offering today, they will be voting with their feet tomorrow.
However, even the retailers that do not have an opportunity to stock their shelves with exclusive merchandise need not despair. There is always an opportunity for introducing service options that are complimentary but also supplemental to the core product offering and will also favorably differentiate you from the competition. For instance, an increasing number of stores are offering free gift wrapping of a purchase or free shipping on larger orders, as those are the little extras that customers tend to remember when making the decisions to come back for new purchases.
