Recession Forcing Retailers to Think Small

The Great Recession and Americans' retreat into thriftiness are teaching retailers a new lesson: How to survive when consumers are focused on "needs" rather than "wants."

In this photo made Friday, Sept. 4, 2009, a customer looks at no-frills laptops (which start around $300) at a Best Buy in Chicago. (AP Photo/Nam Y. Huh)

(AP)

For years, shoppers splurged on everything from $5 lattes to $200 jeans, and retailers responded by opening more stores and offering more choices. Now, beset by high unemployment and limited access to credit, shoppers are limiting most of their purchases only to essentials or the best deals.

Retailers' first response to the sudden and sharp pullback in spending last fall was to offer deep discounts and more coupons to keep merchandise moving. But to survive over the long haul, the watchword for stores and product makers is "small."

They're stocking shelves with slimmed-down milk jugs and half-sized pies. They're charging less for stripped-down products such as blouses with less-frilly designs and detergents with less powerful cleaning action. Brands are disappearing, too, including Kraft's Handi-Snacks pudding. Some stores are being reduced in size, if they're not shut down entirely.

The changes are likely to last for years. Even when the economy improves, it will take years before the debts that piled up during the decade-long shopping spree are paid off. Americans are also getting used to their newly adopted frugal habits of saving more and spending less.

"I don't think we are going to go back to business as usual," said Steve Sadove, chairman and CEO of Saks Inc., operator of Saks Fifth Avenue.

As companies woo buyers, shoppers are finding they're in control. And they're driving hard bargains.

Renee Bello, a real estate broker in Sandwich, Mass., is enjoying the bombardment of store coupons, more lower-priced products and better quality in store-label merchandise, particularly at grocery chains.

"I definitely feel I have power," says Bello, 54, who has been able to grab coveted brands and high-quality groceries even though she's cut her spending in half because of economic uncertainty.