• by Sarah Mahoney  @mahoney_sarah, February 7, 2011

With consumer confidence Ping-Pong-ing between conflicting economic headlines, retailers are struggling to find strategies that work for a bumpy recovery. On one hand, shoppers are buoyed by gains in the stock market and even buying luxury items again. On the other, they're clipping coupons and switching to private-label brands. Marketing Daily asked Marcelo Tau, principal in the retail practice at Booz & Co.'s Chicago office, to sound off on what the smart retailers are doing to adapt.

Q: So the recovery has been a disappointment to chains so far?

A: Yes. The economy is recovering, but not at the level retailers were expecting. We had some spikes in growth, but it was slower in the second and third quarters. And while November was strong, December sales confirmed the sluggish pace of recovery. We're anticipating that 2011 consumer spending will reflect that up-and-down growth path -- we're expecting growth of about 2 to 3.5% per month.

Q: What's behind that slowdown?

A: First, consumers are just more patient. They're willing to wait for the right price. Look at this holiday period -- in November, with stores pushing very aggressive promotions, they shopped. When the pace of those promotions slowed, they stayed home, and the results frustrated retailers. We've now got consumers who say, "What's a good deal for me -- is it 30% off the regular price? 40%? 50%?" And they're willing to wait -- if they've decided that $35 is the most they'll pay for a $70 sweater, they won't buy until the price is right.

Q: How conscious are they of this waiting game?

A: It's not all driven by knowing a lower price will come to them. They really are still uncertain, especially about unemployment. And since those concerns have motivated them to postpone -- and even eliminate -- certain purchases, they know they can do it.

Q: Why are smaller formats more important?

A: With comparable-store sales growth slowing, retailers will have to continue to expand -- but so many of them have saturated the suburban areas. Walmart is one example, and we're seeing its efforts to penetrate more urban areas with smaller stores. And Walgreens, with its acquisition of Duane Reade, is another. Increasingly, we're seeing retailers ask themselves: How can I improve my capabilities in urban areas?

Q: How else can they grow?

A: Stores are trying very hard to create new purchasing occasions -- like Walgreens and Target offering more fresh foods. To get beyond 2% growth, they have to think of new customers.

Q: Where does digital fit in?

A: Well, we all know it's essential -- a good online presence is a must, and we saw such strong sales growth there in November and December. But the challenge now is how to integrate bricks and mortar with online sales. A pure online strategy has its own barriers -- there are still things consumers need right away, or want to actually see. I just bought a rug online and had to return it -- it was really ugly, and didn't look like the picture on the Web site. In the future, we're expecting that retailers will work the differences in the channels more effectively -- stores may become more like showrooms than they are now.