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Why the End of the Recession Could Bring Hard Times to Cause Marketing

The end of the recession could bring new challenges to cause marketers.

I don’t think I’m looking too far ahead, either. The Index of Leading Indicators turned slightly positive in April, suggesting the economy has troughed. If history holds, economic growth is somewhere between one and four quarters away Stateside.

Although I think I can make a good case for cause marketing now while still deep in the recession, I believe we may emerge from the recession with a different environment for cause marketing.

Here’s the reason: America has too many retail stores. Retail analysts say that more than 200 of the nation’s 210 DMAs (marketing speak for 'designated market areas') were ‘fully stored’ in 2007! For most chains growth by adding stores has long since ceased to be a prudent strategy.

A number of retailers, unable to secure credit terms, are giving off a death rattle including Barneys, Blockbuster, Eddie Bauer, Claire’s Stores, Guitar Center, Michael’s Stores, Rite Aid. Blockbuster, notably, is doubly-cursed since it not only faces a cash crunch, but a broken business model. Even Starbucks has eased off its store on every corner strategy.

Many other established chain stores, trying to save their very business, are closing individual stores and shuttering line extensions, among them Liz Claiborne, Ann Taylor, and Talbots.

To give those statistics some dimension consider that right now in America there is 5.7 square miles of empty retail space, about six times the size of Monaco.

In April retail sales overall were down 4 percent from March 2009 and 11 percent over April 2008. [For my part, I’m not worried about what the nation’s municipalities are going to do with all that empty retail space so much as I’m concerned about the shrinking tax base.]

At the same time e-commerce as a percentage of overall retail sales has grown every year since 1999, a result not so much of a lower cost environment, as much as the capability the Internet gives online merchants to endlessly segment audiences. Since the fourth quarter of 2000, e-commerce retail has grown faster than overall retail, suggesting that growth in e-commerce is cannibalizing bricks and mortar retail sales.

Part of this is technology-driven. With outfits like Doba, a PayPal account and the right Wordpress theme, you could be running an e-tail business by tomorrow. The barriers to entry into retail sales have never been lower.

In the same breath, I should note that the largest general e-merchant, Amazon, has seen sales almost double from 2006 to 2008 to $19.1 billion.

Worse, from a retailer’s perspective, consumers have basically won the retail wars. Consumers have better information, global sources, and patience. Even purveyors of luxury goods have lost pricing power in this new paradigm.

In short:
  1. There’s too many retailers
  2. The potential for nearly infinite competition
  3. A more savvy shopper
  4. A depressed sales environment
The first three factors are structural. As the economy improves, only that last factor will change.

If I were short seller, I’d be shorting retail stocks now and for a long time into the future.

To bring this all home for cause marketers, of the 10 troubled bricks and mortar chains listed, I’m seen at least some cause marketing campaigns from five.

More to the point, with a few notable exceptions, cause marketing promotions are overwhelmingly consumer facing. Studies suggest that cause marketing is most effective for companies that advertise. Put directly, cause marketing generally takes place in retail settings.

What effects do I see?
  • I see renewed emphasis by cause marketers on restaurant cause marketing. Restaurants are retailers too, but they have the advantage that customers people can’t really ‘place-shift’ their eating they way they can their shopping. It’s either take-out/drive-in, dine-in, or eat at home.
  • Because retail will continue to shift online cause marketers are going to have to learn some new tricks.
  • While we may yet see some consolidation in online retail, for the intermediate term there’s going to be more operators targeting niche audiences; women’s handbags, outdoor sporting goods, wooden toys, etc. Such niche e-tailing relies overwhelming on Google Adwords which are 8-12 words. In that formulation, there’s not much space for cause marketing.
  • I expect we’ll see more affiliate cause-marketing, like the one made possible by the bookmarklet developed by Tal Ater.
  • For the time being offline retailers need to put a face on their stores, something cause marketing is built for.
Finally e-tailers, in my view, could benefit from getting serious about cause marketing, philanthropy, and corporate social responsibility. E-tailers benefit enormously from not having to charge sales taxes to their customers. Currently bricks and mortar retailers sell nearly 300 times as much as e-tailers. But as that ratio changes in favor of e-tailers, the pressure to require collection of sales taxes will grow.

During the public debate on the issue of taxing sales from e-tailers, the bricks and mortar retailers will claim… with some degree of truth… that they are generous donors to charity. Right now, the best that Amazon can counter with its sponsorship of the Clarion West Writers Workshop and the PEN American Center. That’s not going to be good enough for the 800-pound gorilla of e-tailing when pressure is brought to bear.

Comments

Adam said…
Traditional retail is certainly in trouble - only the stores that offer a true shopping "experience" or satisfy immediate needs that arrive on a whim will survive as traditional store-fronts. Everything else will eventually be moved online in some form.

Part of this "experience" may be aligning the company with a cause that can make a difference and inviting customers to be a part of this cause.
Hi Adam:

I agree.

Pay special attention to that last link to a survey from EuroRSCG that finds exactly that.

Thanks for the comment.

Warm regards,
Paul
Just a day after publishing the post I find this story in Business Week that shows cash-strapped states are indeed successfully taxing online retailers and other businesses which do not have physical offices in the state, which is the traditional standard for state taxation.

However, it's not sales tax they're collecting, but income tax.

Massachusetts has already successfully taxed Capital One.

New York state does the same and survived a challenge from Amazon in the New York State Supreme Court earlier this year.

Almost certainly other states will follow Massachusetts' and New York's lead.

Read the Business Week Story here:http://www.businessweek.com/magazine/content/09_22/b4133028564343.htm

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