Article

Executive roundtable: HP on retail in 2010

Two top-level executives with HP discuss what retailers need to focus on in the coming years.

March 21, 2010 by James Bickers — Editor, Networld Alliance

Founded in 1939, Hewlett-Packard Company is one of the largest technology companies in the world, reporting 2009 revenue of $114 billion. For the past 45 years it has served the retail industry with its enterprise services division, and today it can boast that 90 of the top 100 retailers worldwide are clients. Services HP provides to the retail world include application development, call center outsourcing, network and storage management, business intelligence, inventory management and general IT consulting.

We recently had the opportunity to sit down with two high-level executives within HP's retail division - Bjoern Petersen, vice president and general manager, Retail Industry Group, HP Enterprise Services, and Mario Vollbracht, Executive Segment Lead for Consumer Goods & Retail, HP Enterprise Business – and talked with them about their outlook for retail in 2010.

James:From your perspective, what is the number one priority on the minds of most retailers as they look at the new year?

Bjoern: In my mind it’s the consumer and the consumer behavior that has changed, and you know, how to get the maximum wallet possible under the current circumstances from the consumer. I think for me that is the No. 1 thing. We have a different environment, and we have a consumer who has now consistently over several months behaved differently than before we hit the economic crisis.

You know, in my mind, we basically have a consumer out there who is more deliberate in their decision making. We have lost a lot of the impulse buys that we had before. And what that drives to is a consumer who is normally better informed. It is that consumer, that consumer behavior, that change that we are seeing, and trying to get the maximum wallet that you can out of the consumer. I think that is driving pretty much everything in the retail world right now. It’s driving the merchandise mix, the pricing strategy, the inventory levels which are down, and it's driving some of the technology considerations that these considerations have today.

Mario: I’m not going to contradict you. A long time ago someone told me in retail the most important thing is location, location, location. And while that’s still the case, it’s all about what Bjoern said, like what do you put out in that location, who is that consumer, and how do you influence him or her at the point of purchase? And you know, keeping inventory levels lean, cost efficient, is a big factor in retail today more than ever. But you have to get the consumer in the door and convert sales.

James:Historically, when the economy goes bad, consumer behavior changes, and then when things get good again consumer behavior largely changes back to the way it was. I see a lot of people saying that this time it’s different, this time it’s not changing back.

Bjoern: Well, you know I think what is different is the environment that we put the consumer in. I think in the past I agree with you, when things went bad the consumer throttled down and then he bounced back. What we are facing at this point is a continued and prolonged unemployment situation that is very, very uncomfortable, and will continue. I feel the unemployment situation and the underemployment situation is severe and I don’t think it’s going to go away over night. I don’t think that it will be fundamentally different at the end of this year than at the start of the year, actually. I believe it will get better toward Q3, Q4, you know, but compared to where we were before the crisis will still be pretty bad.

Additionally, if you look at the needs pyramid, you need a job so you have cash flow coming in, so if that’s not there that’s an issue, and it’s hitting different parts of the population in different severity. Then you need a roof over your head. You know, the numbers that we’re getting from the housing market are not encouraging. So if you look at the foreclosures that we’ve seen, towards the end of ’09 where we have the data, they are still at record highs, so at the basic needs pyramid there are still a lot of uncertainties. A lot of uncertainties. So for that portion of the population I don’t think we’ve reached a point where you could bounce back.

I think that there are pockets of the population that were very scared going into this recession and they’re now at a point where they say "Okay, the recession is officially over and the stock market has bounced back to a degree, I still have a job, and despite the ongoing cost cutting in big corporations, it looks like I’m gonna keep it." So I think for that portion of the population layer, there’s an ability to bounce back to more "normal" behavior because the security element is stronger. But for the majority of the population, I think we still have an uncertainty element that drives you down to a needs-based behavior.

I think that everyone is sick and tired of turning over every dollar. I think everyone would like to splurge, and would like to do an impulse buy. But I think people at this stage, at least, are still pretty good at keeping themselves in check and doing it on a needs-based basis because they are forced to do so.

If you look at boot sales, for example, the rise that we had in December - to me that indicates, some of the ladies really had a want but you could argue that you had a need, because you had the severe weather, and you know, off they went, and the boot sales went through the roof. But I think, all in all the consumer, to me, is not yet bouncing back. And I have a hard time predicting when it will be the case. I know some people say it will never happen, but I’m not so sure about that, to be quite honest. I’m somewhat pessimistic that it will happen in full force in 2010, because there is such a large part of the population that is still forced to be very, very deliberate in their decisions.

James: Well, whenever it does happen, two or three years from now, when that customer does bounce back, do you think that that customer is, for instance, going to stick with the private label groceries, or are they going to switch back to the old brands?

Mario:You raise a really good point there. I think the private labels at this point are proving their value. If you’re switching to the private label, not just for a week but for months now, grudgingly, you get used to it, and you get the taste buds for it, and you start to wonder why you ever paid more before for the brand. I think the private labels are here to stay. They might taper off a little bit, but they’re here to stay. Some of those brands might be challenged, and what that will drive in turn, is that a lot of the consumer goods companies in turn will try to get closer to the customer.

Bjoern:I think that private labels right now have a very strong run. And there will be, in my mind, a fight between private label and consumer goods companies, and I’m not yet sure where the market share will stabilize between those two portions of the market.

Mario: The interesting development that you see now in private label is that it’s flipped, and retailers are going down the path of having a private label, or multiple private label brands or high position private labels that have been around for a while, and they’re really building it into a brand - and then putting a cheaper alternative underneath that. And that’s a very clever strategy from a brand position.

James: What about the concept of just a couple of years ago, that for a lot of people, shopping was not just a way to get the things that you need and want, but the act itself was enjoyable. It was a treat to go to the mall whether you bought anything or not, it was something you did for entertainment. That has largely gone away. Can retailers get that back?

Mario: I think there are methods and there are ways to get that back. I think it’s going to be hard for them to do that, and when you say retail, I think it’s tough to talk about retail because I think it depends on most of the sub-retail channels that we talk about. Department stores getting that back, I think it’s going to be very hard for them to do that. If you go into grocery you get that back by making it a really efficient shopping experience. And that’s the self-checkout and linking into mobility with consumers and really tailoring to how a consumer shops today.

One of our HP Labs people recently said, the one thing that we don’t have enough of is time. And you know that is the scarcity factor nowadays. We get bombarded with information and we don’t have the time to spend on all of it. So it needs to be efficient. If the retailer can tailor to that, and give me perceived value, and treat me as the consumer I want to be treated as, yeah, you can get me back in the store, absolutely. But it’s going to have to involve things like mobility and self-checkout or self-scanning, and make it a very interactive experience for me.

Bjoern:On the apparel side, I would say, the majority of the shoppers in apparel are female. I think in my mind there is still an affinity between having a shopping spree and actually enjoying it, so I think that to a degree will come back on the apparel shopping, especially on the female side. Time however, and I agree there with Mario, is a big issue. You know, lifestyle is not getting any slower. The commitments you have toward your kids' activities and other family activities and work are ever-increasing, so when you have that little moment, what are you going to do with it? Are you really going to go shopping? I think to a degree, yes, but maybe not as much as you saw before.

I don’t think it’s going to disappear completely. I think it’ll bounce back to a degree. At least, I haven’t met a woman yet who says "I don’t enjoy going shopping anymore."