Retail, shopping & leisure

Selling Virtually Nothing

What happens if the economic downturn means that you can no longer buy a $3,000 Gucci bag? Simple. Buy a virtual version of the same bag for $4 instead. Virtual Greats is a US-based company that acts as a broker between brands and celebrities in order to get their products on sale in virtual worlds such as Gaia online. Profits margins are a healthy 70-90%, largely because the products don’t actually exist. Distribution is virtually nil and so too is manufacturing. Nuts? Maybe. But Virtual Greats has already signed up Justin Timberlake and Snoop Dog and expects to represent 30 virtual worlds and 50 artists and brands by this time next year.

Clients seeking virtual licensing deals range from movie studios to luxury brands such as Prada and Channel. If you’re still not following this let me explain. Avatars need clothing and accessories to stand out from the crowd. Hence a virtual pair of Elvis Presley’s blue suede shoes or a virtual version of Paris Hilton’s pet Chihuahua makes some kind of sense to some kinds of people. There is even a secondary market for many of these items developing, not least because many of these licensed virtual goods are only available in limited editions. According to most estimates, the value of virtual goods (which includes online games as well as avatar clothing) is around US$1.5 billion globally. Facebook, the social network, now allows members to spend real money on virtual goods to send to their friends. This makes perfect sense for social networks, not least because they have few other real life revenue sources. Facebook has also done business with Ben and Jerry’s Homemade Ice Cream (now part of Unilever) to give away 500,000 virtual ice cream cones. It’s a weird wired world out there folks.

Tesco Targets Banks and Ageing Population

UK-based Tesco, the world’s fourth largest retailer, set up a joint venture with the Royal Bank of Scotland (RBS) to offer customers a range of basic financial products in 1997. The range of products has expanded to include loans, credits cards, car insurance and even pet insurance. In a rather timely move, Tesco bought out RBS from the venture in July 2008 for GBP 90 million and is now poised to offer customers everything from current accounts to mortgages. Current accounts, in particular, could be a good bet because in the current economic climate people are looking for safety and, despite the odd moan and groan, UK supermarkets are well trusted. Moreover, customers visit supermarkets more frequently than retail banks, so the move could be a shrewd one. However, this initiative leads to one very interesting question: If supermarkets are getting into banking, what should the banks be getting into?

On a related note, Tesco is also planning to open a supermarket specifically aimed at older shoppers. This idea isn’t new. The Kaiser supermarket in Friedrichshain, near Berlin, was the first supermarket to design itself around the needs of older shoppers. In the German case the results have been good, with 60% of customers aged 50+. Tesco’s design will be similar to the store in Friedrichshain, with wider aisles, larger checkout areas, magnifying glasses on trolleys, non-slip flooring and alarm buttons for immediate customer service. Other ideas could include larger pricing labels, larger print on the back of packs and possibly even defibrillators in-store in case customers have a heart attack while shopping. This idea blends beautifully with the ageing trend in most countries and will undoubtedly be copied by retailers in other sectors.

Why We Buy

Why do we buy and what do the things we buy say about us? This, broadly, is the subject of three new books addressing the question of how identity shapes what we buy and vice versa. Interestingly, one book is by a journalist, one is by a psychologist and one is by an anthropologist. The first book, Buying In by Rob Walker repeats a few well-known truths, such as the fact that traditional advertising channels are in decline and that marketers are having to become more precise in order to reach increasingly fragmented and atomised audiences. The second book, Does Ethics Have a Chance in a World of Consumers by Zygmunt Bauman, puts forward the argument that we buy in order to achieve the illusion of happiness but this is temporary and only achievable if we constantly throw away things. This constant movement has been dubbed ‘liquid modernity’ by Bauman, who also makes the interesting point that our disposable society also extends to ‘strangers’.

The third book is the best of the bunch. The Comfort of Things by Daniel Miller delves into our relationship with ‘things’ by looking inside 30 households on a typical London street. ‘For me, this street is New Guinea and every household is a tribe’ says Miller, who also asserts that we use ‘things’ to create meanings in life, love and relationships. So here’s the question. If this fragmentation (or perhaps individuality?) is true then how can any kind or organisation effectively connect with large groups of people? Bauman also says that the ‘consumer is the enemy of the citizen’ Maybe he’s right. But then explain the recent anti-war protests or the coalescence of the willing that elected Barrack Obama. Maybe things aren’t in such bad shape after all?

The New Austerity

Attitudes and behaviour usually don’t change very fast unless there is a severe external shock. Whether 2009 delivers such a shock to surpass the turmoil of 2008 remains to be seen, but it’s likely that a few things are already changing.
The most obvious consequence of the economic situation is that people will reduce their dependency on debt. Another is that most people will spend less. Short of moving house, reducing the size of a mortgage is tricky so the most likely implication is cutting down on non-essentials. The word thrift hasn’t been heard for a while, but along with austerity, terms like no-frills and value for money seem to be back in vogue. As an article in the New York Times points out that the current drop in consumption levels is almost without precedent in the modern era. People are dropping spending strategies based on asset values and future wealth projections and are instead concentrating on income and savings-based strategies.

Good job too. At the end of 2007 household debt in the US hit 133% of disposable income (up from 90% ten years earlier). The end result is not exactly a savings culture but there is certainly a move towards economising, which includes the sustainability manta of reuse, reduce and recycle. What does this mean for retailers? It’s still a little too early to say but it does look as though hedonism and luxury on a grand scale are dead (or resting) and that self-sacrifice will replace self-gratification for at least a while. Hence, dollar stores, house brands and no-frills retailers such as Aldi and Lidl are in and, as a general rule, customer service and brand experience are out. That’s of course unless things turn out to be not so bad after all, in which case people will pick themselves up and carry on as though nothing ever happened.

China’s Middle Class Goes Shopping

The idea that China’s population is split between the rural poor and the urban rich is completely incorrect. 40% of the Chinese population now reside in cities and they are responsible for 70% of Chinese retail sales. A growing middle class, largely but not exclusively urban in character, is therefore changing the retail landscape. It is estimated that there were roughly 35 million middle-class households in China in 2006 and the figure will reach 100 million by 2016. These people are typically aged between 20 and 40 and earn between US$7,500 and $25,000 per year. As a result retail sales have been rising at around 20% and overall consumption has reached approximately one-third the size of consumption in the US. Watch this space.