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How the current government shutdown may affect retail spending

October 2, 2013

Marketers prepare for low spending during holidays

Retailers prepped mobile experiences for peak holiday periods

Just as retailers begin to push their holiday marketing into full gear, the government shutdown could force marketers to switch up their plans with efforts more tailored towards bargain shoppers who will likely be researching prices via their mobile device.

The United States’ partial government shutdown Monday night as a result of Congress’ disagreement on how to fund federal government groups could leave thousands of consumers unemployed during one of the biggest consumer spend times in the holidays. Although it is too early to tell what kind of long-term impact the shutdown poses, marketers can expect consumer spend to drop during the holidays and can bet on consumers showrooming more in-store.

“Mobile marketing has the benefit of being context-specific,” said Ian Schulte, vice president of new ventures at Latitude, Boston.

“Retail operators, for instance, will be able to identify underperforming markets – say, locations in which government work and contracting are major elements of the economy – and target specific value propositions and price promotions to mobile users in those markets,” he said.

“Mobile would seem to afford retailers the opportunity to preserve pricing in relatively less affected markets, while promoting consumer spending in markets that have taken a bigger hit.”

Marketing impact
The government shutdown this week marks the first time that a shutdown has happened in 17 years and impacts two types of federal government workers that are grouped into essential and non-essential jobs.

Employees with an essential job will work through the shutdown without pay and receive paychecks at the end of the shutdown. This includes positions that tie into public safety or national security such as the military and social security workers.

Non-essential jobs include positions in immigration, housing and health.

It is expected that the shutdown will result in 800,000 furloughed employees out of the 2.9 million federal workers employed by the government.

Although the shutdown does not impact private businesses and contractors, a ripple effect will likely take place if the shutdown continues, and workers in these types of businesses could also take a hit if it lasts long enough.

As retailers prepare for consumers to spend significant amounts of money during the holidays, some marketers may find that because consumers are spending less money, their holiday marketing may need to be tweaked at the last minute this year.

“The impact of the government shutdown on the holiday season will depend upon the length of the shutdown,” said David Russo, vice president at Boston Retail Partners, Boston. “If the shutdown lasts only a few weeks, there will be little holiday effect.

“The income of most Americans is tied more closely to the private sector than the public sector,” he said. “Obviously public sector employees who are likely to be furloughed will not have the disposable income to spend through the holidays. While this is a significant number of individuals and families, it’s still small compared to the overall workplace.

“As the shutdown progresses, retailers will increasingly turn to mobile forms of marketing to influence customer behavior while consumers will turn to their mobile devices to find the best deals.”

Smaller basket sizes
To prepare for consumers spending less amounts of money this holiday season, retailers should aim to primarily market their lower-cost items.

Home Depot is one of the retailers that seems to be taking a clue from its past marketing during cash-strapped times.

“What I saw was when the Great Recession started, one of the reasons that Home Depot did well is that they realized that pushing major products was not a good idea,” said Paula Rosenblum, managing Partner at RSR Research, Boston. “They were advertising just painting your rooms – in other words they were tampering down on what they were selling based on what consumers were buying.

“The fact that I noticed that they are running their paint commercials again last night – to me that’s potentially what we will see again,” she said. “Smart retailers are pushing for smaller baskets.”

“This is way too soon. In general the whole supply chains are bullish on 2014 – that will change if this doesn’t stop.”

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