In an age of austerity and heated competition, retailers are courting their premium customers like never before.
These customers aren't necessarily merchants' wealthiest shoppers, but rather their most valued ones: Those who, for the sake of convenience or product choice, often pay full price rather than wait for a sale. They make up just 30 per cent of consumers, but generate about 50 per cent of retail sales and 70 per cent of gross profit margins, according to new research from rewards-program specialist Aeroplan. Retailers count on them to help bolster margins even as stores are forced to offer discounts to lure today's cautious consumers. But in a sluggish recovery, even premium customers sometimes hunt for deals, raising the ante for companies to draw them back.
These are people like Angela Haff of Vancouver, who recently snapped up a $395 pair of five-inch heels at a Stuart Weitzman store and two tenderloin steaks for $50 at Whole Foods. At the same time, she shops outlet stores during her U.S. business trips and looks for deals at discounter Costco Wholesale.
"If it's important to me and the quality is good, then I will pay full price," said Ms. Haff, 56, a manager at a pharmaceuticals company. "But I like getting a deal."
Now retailers, struggling to make gains, feel the pressure more than ever to hold on to Ms. Haff and their other best customers. Merchants' annual sales growth at stores open a year or more – a key retail measure – has dropped to between 2 and 4 per cent, on average, compared with 4 and 6 per cent in prerecession days about five years ago, estimated Manu Sarna, general manager of retail at Aeroplan. The lower sales are squeezing margins, although retailers have managed to achieve small margin increases by negotiating breaks from their suppliers, he said.
The shifting dynamics are forcing retailers to find new ways to woo their premium customers. "We can't lose sight of our best customers," said Robert Koss, vice-president of marketing at grocer Longo Brothers Fruit Markets Inc. in Vaughan, Ont.
To cater to their premium customers, companies are equipping their employees with iPads to help customers research products; reaching out to shoppers on social media and blogs; enticing customers with "treasure" products that can be hard to pass up; pumping up their loyalty programs and VIP clubs to help provide more targeted marketing; and stepping up offerings of convenience items at higher prices – and margins – such as ready-to-serve prepared foods at grocers.
London Drugs Ltd. of Richmond, B.C., is among retailers that are starting to hand out iPads to their staff to help customers compare prices. "We don't want them leaving the store," said Wynne Powell, chief executive officer at London Drugs, which carries everything from electronics to food.
He estimates his best customer spends about $1,700 annually and generates gross margins that are up to a few percentage points higher than those of his average customer. They make up for the "cherry pickers" who just shop for deals advertised in flyers and yield zero margins, or even losses, he said.
To keep his best customers, he tempts them with "treasures" scattered throughout the store, such as a nine-piece patio set for $299. They're items shoppers don't necessarily need but that they may want. The strategy seems to work: Most of his customers leave with more than they came for, he said. "We often get the story: 'I came for toilet paper and I left with a 50-inch plasma [TV.]' "
Longo's tries to lure customers by offering meal options aimed at time-starved shoppers ready to pay a little more for the convenience of prepared foods. Sales of the items in the program, which started about a year ago, exceed the chain's overall same-store sales growth, Mr. Koss said. And each of the higher-end options provide about a half-percentage more margin for the retailer, he said.
Other retailers are fighting to nab customers with rewards programs. Loyalty card holders at Shoppers Drug Mart Corp. spend twice as much as non-cardholders, company executives have said. Now Shoppers is focusing on mining the data from its Optimum card members to more effectively pitch products to them to match their past shopping preferences.
In late 2010, the Bay issued a black VIP card to its best customers – those who spend more than $1,200 a year, which is three to four times more than its average customer spends, said Patrick Dickinson, senior vice-president of brand strategy. Today, about 200,000 customers are in the VIP club, 43 per cent more than the number of shoppers who spent $1,200-plus when it was launched, he said.
The chain recently offered them 20 per cent off almost everything in the store during a weekend, resulting in a "margin-positive" 25- to 30-per-cent sales lift compared with typical weekends, he said. "These people are important and not just for the amount that they spend. … They've put up their hand – they are loyal."