Retail surgery: We are largely reliant on consumers’ discretionary spend. How should we tackle continued muted consumer sentiment?

AlixPartners research has found that 79% of Britons are not expecting a return to pre-recession spending until 2012 at the earliest.

Add in the 50% fall in housing transactions and big-ticket retailers and those in the more discretionary categories are feeling the squeeze.

AlixPartners director Dan Murphy says many of these retailers have been active on price promotions in their quest for market share. However, the complexity and volume of promotions has reached the point where customers are finding it hard to understand the value proposition, and retailers are finding it difficult to maintain margins.

Murphy points out that retailers such as Kingfisher, Morrisons and Asda have recently stated that they are pulling back from a lot of promotional activity to help boost margins and simplify pricing messages.

He says: “Retailers are going to have to find new ways of appealing to customers. One option in the big-ticket space is offering interest free credit. When times are tough, many consumers become more interested in monthly repayments.”

Middle class consumers are facing a tightening of the easy credit they rely on - credit cards and mortgage equity release. For these customers store credit offers will become more important.

Murphy says: “Rather than diluting your net margins with promotions, interest free credit or delayed payment offers could be a better way of engaging customers who are fundamentally credit-worthy but have just become nervous about their personal financial situation.”