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Welcome to the ShopperScape™ Newsletter January 2006

• Look to cyberspace for growth opportunities as more browsers become comfortable with buying online.  Free shipping is working to motivate higher conversion rates.
• Expect a solid start to the new year but not quite the bang as last year.  The Middle Market bounces back this month.
• Expect Wal-Mart to outperform other retailers in offering the best deal but also anticipate that larger percentages of shoppers will demand more than great deals.  Despite Wal-Mart being named the top pick of places to get the best deals on holiday gifts, a smaller percentage of shoppers bought gifts there this season than last.  Those who shopped, however, spent more than those shopping last year for gifts.
• Look for consumers to trade their holiday best for overalls and work jeans to tackle DIY projects.
• Anticipate overseas growth to come largely from high-risk markets China, Russia and India.
  

Browsers Turn Into Buyers

More than four out of five (86%) ShopperScape^™ shoppers turned to cyberspace this year to browse for holiday gifts—about the same number that were browsing last year.  While the percentage of shoppers browsing online for holiday gifts held nearly steady compared to the prior holiday, more shoppers this year actually purchased a gift from an online merchant. 

• Eighty-six percent of all shoppers in December 2004 shopped for gifts online, about the same proportion of shoppers during the 2005 holiday.  All three income segments showed essentially the same penetrations of online browsing activity as in 2004 (Figure 1).
  
  
• Up Market shoppers were the most likely to use the Internet for holiday gift shopping (92%) while Down Market shoppers were the least likely (76%). 
  
  
• Although the percentage of shoppers shopping online for holiday gifts has remained consistent, there has been an increase in the percentage of shoppers purchasing gifts from online retail sites among all income segments.  In December 2005, 79% of all online shoppers reported having purchased a gift online, up five percentage points from 74% in the prior December.
  
  
• Down Market shoppers exhibited the greatest increase in the percentage of online shoppers purchasing holiday gifts from an online shopping site, rising from 59% in December 2004 to 65% in December 2005. 
  
  
• Mirroring December 2004 results, Up Market online shoppers were the most likely to purchase gifts from online shopping sites in December 2005. 

Source: Retail Forward ShopperScape™.

Middle Market Marks Solid Start to New Year

Look for overall spending at retail to improve modestly in January, according to Retail Forward's Future Spending Index.  The index increased to 99.7 from 97.3 in December, suggesting that consumers should continue to open their pocketbooks in the weeks ahead (Figure 2).  However, the index is below last January's level, suggesting that growth will more modest than the strong pace logged at the start of last year.  The Future Spending Index for Middle Market households jumped higher this month, offsetting declines in the Down and Up Market income segments.

• The index for Middle Market households (incomes between $22,500 and $75,000) rose from 93.3 in December to 102.1 this month.  Better assessments of jobs and incomes, debt burdens and investment worth compared with a year ago powered the index higher.  An uptick in home buying contributed to January's rise in spending intentions for this cohort.
  
  
• The index for Up Market households (incomes greater than $75,000) slipped to 95.9 in January from 97.3 last month.  Greater concern about debt loads has dampened near-term spending plans in this segment offsetting stronger job security and home buying.  A dip in refinancing activity, a key driver of consumer spending in recent years, also is weighing on Up Market spending plans.
  
  
• Down Market households (incomes less than $22,500) are starting the year with more pessimistic views of job security and credit card balances, causing the index for this segment to decrease to 103.0 in January from 109.5 last month.  An improvement in the pace of home buying cushioned the decline.

Source: Retail Forward ShopperScape™.

The Retail Forward Future Spending Index combines households' current assessments of key drivers of spending across income segments, including the job situation, incomes, investments, debt levels, home buying, and seasonal factors to produce a forward-looking indicator of spending for the coming month. 

Free Shipping Favored By Most Online Shoppers

Free shipping ranked highest as the most-used "feature" at online shopping sites during the 2005 holiday season.  Other popular features reveal the high level of pre-shopping that occurred this holiday season via the Internet to complete preliminary product or price research and using search functions at online shopping portals to locate retailers carrying specific products (Figure 3). 

This month's survey results show that there were relatively few procrastinators in cyberspace.  The vast majority of shoppers did most of their online shopping before the week leading up to Christmas despite the fact that many online retailers offered Christmas Eve delivery. 

Source: Retail Forward ShopperScape™.

• Nearly half (48%) of all online shoppers received free shipping for an online order.  This percentage was highest among Up Market shoppers (60%), who were almost twice as likely to receive free shipping for an online order compared with Down Market shoppers (31%) in large part because Up Market shoppers were more likely to be online purchasers.
  
  
• Many online shoppers chose to use a retailer's Web sites to research products or prices before going to that retailer's store to make a purchase.  This was the most popular feature used by Down Market shoppers (37%).
  
  
• More than one-third (34%) of all online shoppers used the search function at an online shopping portal to find all of the retailers that carry the product(s) they were looking for.
  
  
• Many online shoppers (30%) also were likely to use a manufacturer's Web site to research products or prices before going to a retailer's store to make a purchase.
  
  
• The majority of online shoppers (61%) did most of their online shopping after Thanksgiving but before December 18^th.  One-fifth (20%) were online before Thanksgiving day trying to get a jump start on holiday shopping, while 13% waited until after December 18^th, or the week leading up to Christmas, to shop online for holiday gifts (Figure 4).
  

Source: Retail Forward ShopperScape™.

Best Bang for the Holiday Buck

So what retailers did shoppers tap as offering the best deals for their money during the holidays?  Shoppers cited discounters Wal-Mart and Target, online sites and value department stores most often. 

• Forty-three percent of all shoppers found that Wal-Mart/Wal-Mart Supercenter gave the best deals for their money.  Down Market shoppers were by far the most likely to share this sentiment (54%) (Figure 5). 
  
  
• Nearly one-quarter (24%) of all shoppers felt Target/Target Greatland/SuperTarget gave them the best deals for their dollars.  Up Market shoppers especially favored Target.
  
  
• Cyberspace was also a favorite, with 23% of all shoppers finding the best deals for their money online.
  
  
• Value department stores such as Kohl's (18%) and JCPenney (16%) were among the top retailers where shoppers found the best bang for the buck during the past holiday and held the most appeal with Up Market shoppers.

Source: Retail Forward ShopperScape™.

Wal-Mart Holiday Shopping

Although fewer shoppers did holiday gift shopping at Wal-Mart in 2005 compared to 2004, spending was up among participants looking for Wal-Mart's bargain prices and holiday deals.  The Down Market saw the biggest decline in the percentage of shoppers browsing the discounter/supercenter, and the amount they spent this year wasn't significantly higher than what they spent last year.  On the other hand, Up Market gift buyers spent an average of $251 at Wal-Mart/Wal-Mart Supercenter—$51 more than the average spent last year among Up Market shoppers (Figure 6).

• Down Market shoppers recorded a 10 percentage point decline in the percentage of shoppers doing holiday gift shopping at Wal-Mart.  Both Middle Market and Up Market shopper segments reported a seven percentage point decline.
  
  
• Despite their lower percentages, holiday Wal-Mart shoppers spent an average of about nine percent more at Wal-Mart for holiday gifts across all market segments.  In December 2005 all holiday Wal-Mart shoppers spent an average of $197, compared to $180 in December 2004
  
  
• Down Market shoppers spent an average of $168, up just a little over two percent from last year.  Middle Market shoppers spent an average of $196, up almost nine percent from last year.  Up Market shoppers spent an average of $251 this year on holiday gifts at Wal-Mart—almost 26% more than last year.

*Reflects average dollar amount spent at Wal-Mart based on self-reported shopper spending.
Source: Retail Forward ShopperScape™.

Going Up: Back to Home Improvement

Now that the holidays have ended it's time to go back to work on home improvement projects.  Home items such as storage/organization, assembled furniture, plumbing supplies, ready-to-assemble/assemble-it-yourself furniture, building materials and hand tools are on more shopping lists for January than they were for December. 

Also, anticipation of the winter cold season is driving more consumers to buy vitamins and nutritional supplements this month although shoppers seem a bit less cautious than last year when flu shots were scarce.

Source: Retail Forward ShopperScape™.

Going Down: Holidays Are Over

With the holidays over, retailers will see a decrease in the percentage of shoppers planning to purchase categories representing popular gifts this holiday season. Clothing purchases—especially girl's clothing, boy's clothing, men's casual tops, women's casual tops, infant's and toddler's clothing, and men's underwear, undershirts and socks—will fall off in January but not much more, if any, than the traditional slowdown. 

The category with the largest year-to-year decline is pre-recorded music or video tapes, CDs or DVDs.  Downloadable music and the lack of many blockbuster movies this past year are proving problematic for this entertainment category.

Source: Retail Forward ShopperScape™.

Global Retail Outlook

"China, Russia and India are the emerging markets at the top of Retail Forward's ranking of the best retail market opportunities around the world.  These high-growth, high-risk markets are joined by large, low-risk, healthy growth countries, including the United States, the United Kingdom, Australia, Canada, Spain and Japan.  The rankings are based on forecasts of retail spending through 2010 and measures of market risks.

Among the top 10 ranked countries, five fall in the best opportunity quadrant of Retail Forward's Global Retail Opportunity Map.  And seven of the top ranked countries are among the biggest retail markets in the world as forecast to 2010.  This year's rankings have been shuffled by strong economic growth in countries such as Australia and Japan, as well as by changes in data sources and approach."

Frank Badillo, Vice President, Senior Retail Economist and
Manager of the Global Retailing program,
Retail Forward Intelligence System™

For more information on Global Retail Outlook, December 2005 or the Retail Forward Intelligence System™ call Kathy Clarke at 614-355-4009 or email her at kclarke@retailforward.com. 

700 Ackerman Road Suite 600
Columbus, Ohio 43202
Voice: 614 355 4000
Fax: 614 355 4059
http://www.retailforward.com

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