It once seemed as if Gap would grow forever. Shoppers couldn't get enough of the clothing that CEO Mickey Drexler's merchandising machine offered — jeans and chinos in every imaginable style, loose button-downs in great colors, simple cotton sweaters that made Gap models look great and the rest of us look not half bad.

Then Drexler, whose personal fashion vision had built the empire, began to get trendy. Tiny, funky tops with appliquéd designs were stacked next to bright red Capri pants and clingy lime sweaters. It was too much for even the most casual Friday, and customers of a certain age found little to like. Once-loyal Gap shoppers were soon muttering the five scariest words in retail: “Who would buy this stuff?”

The fashion darling had lost its sex appeal, and Drexler left the company last year. Longtime Gap customers might have been able to warn him that trouble was coming, but Drexler was known for valuing his own judgment more than customer research. Just about the only way Gap shoppers could be heard was by not spending.

And not spend they did.

Gap's troubles weren't unusual. Plenty of retailers are having a hard time connecting with their once-solid customer base — evidence; look no further than Lord & Taylor and other struggling department stores. Shopper preferences are more fluid these days and spending choices are multiplying. Making matters worse, many retailers cling to an entrenched view of what customers want — even if falling sales suggest that they're wrong.

So what do customers want? Retail Traffic decided to find out by looking at the habits of some typical American shoppers. We found, not surprisingly, that they want more — more value, more selection, and more convenience. To their annoyance, they don't always get it. They are still loyal to brands, though not at any price, and they like their stores to be pleasant and organized.

Maybe most of all, they crave better customer service. “If they want me to be happy, to come back and buy, then they have to supply the customer service,” says Philadelphia shopper Gayle Slurzberg. (Our shopper profiles start on page 31.)

But more customer service is exactly what many hard-pressed retailers are unwilling or unable to provide. “The problem is that what customers want and what retailers want is very different,” says Britt Beemer, chairman of America's Research Group, a South Carolina-based marketing and research firm. “Consumers have been good about accepting things like retailers who have reduced staff levels in the stores, but what they haven't been good at accepting is things like tough returns policies, which are infuriating to them.”

Much of this inability to address problems is rooted in cost. Adding expense in the form of more sales staff or a more generous returns policy — even those things that are good investments in the long-run — is hard to do when margins are razor-thin to begin with. Retailers “are sometimes more worried about investors than they are about losing a customer,” says Beemer.

In fact, Beemer doesn't think most retailers are trying very hard to understand consumers better. He says bottom-line pressures are forcing them to do less qualitative research and to rely more on small focus groups, if they are doing any market research at all. “They know less about their customers than at any time in the past 15 years,” he says.

Richard Reinberg, director of the Center for Customer Driven Quality at Purdue University, dismisses focus groups as “horribly ineffective in predicting trends.” Most decisions about trends are simply guesses, he says. “And it is difficult to guess right.”

When retailers do make the effort to improve customer service, they can be undercut by poor hiring and training practices. “There's a lot of talk about hiring the best people, but in the end you wind up hiring anyone you can get,” says Edie Weiner, president of the futurist-consulting firm Weiner, Erich, Brown Inc. of New York.

Weiner adds that while many retailers “are making a tremendous effort” to reconnect with their customers, “they're just not doing it. There's a big gap between words and action.”

Still, most agree that there is at least an awareness that reconnection is vital. “The good news is that we're starting to see more people trying to figure out who the customers are,” says David Szymanski, director of the Center for Retailing Studies at Texas A&M University. “There's a trend toward an expanded value equation that some have been slow to see. Retailers have to focus in on the intangible, on things like respecting the customer's time.”

Or respecting their taste. Before his retirement last year, Drexler began to move Gap back toward the basics, and new CEO Paul Pressler has continued that shift, helped by a heavy focus on customer research and strategic planning. The result: Less hot pink and more black ink. The Gap is once again a darling, at least in the eyes of Wall Street.

Some retailers never get the message. Szymanski points to Service Merchandise, the Tennessee-based retailer that filed for bankruptcy and closed what was left of its 347 stores in 2002. Service Merchandise's customers learned to value patience. Once they found something to buy, they filled out an order form, waited for a salesperson to input it and see if it was in stock, walked to a separate area to pick up the product, then paid. It was a system only a bureaucrat could love.

Success, Szymanski says, “is not always just about knowing products. It's about understanding process, too. … Service Merchandise missed the whole idea that customers didn't want to go through the lengthy process of filling out forms.” Indeed, some customers couldn't fill out the forms, either because of educational or language issues — “an institutional barrier that was just plain counter-intuitive,” he says.

Retailers have long clung to a “merchant mentality” that holds that the right product and the right look will bring customers into stores, notes Dan Stanek, the executive vice president of Retail Forward, an Ohio-based research and consulting firm that focuses on retail.

But industry consolidation “has put a lot of pressures on these bigger companies to be more sophisticated and everyone's going to have that hot look. “What they need to do is differentiate themselves with improved service.”

One way to do that is through more use of analytical tools, Stanek says — examining their products and their movement “at the fine granular detail level of what's moving and what's not.” He says retailers are increasingly turning to research, including surveys on customer satisfaction and tracking programs on competitors.

Then there are the newer techniques, such as in-store video ethnography. Ethnography, which has its roots in anthropology, is the science of learning about behavior through careful observation. In a retail setting, says Stanek, customers are videotaped as they shop to determine all manner of information — what they look at, what they ignore, where they seem confused, and how they interact with displays. The tapes are then analyzed by trained observers whose interpretations can be used to determine “the challenges and the areas of improvement in the store,” he says.

“This enables us to take apart the shopper process and create metrics,” Stanek says.

Technology is likely to bring improvements in customer service. Harry J. Friedman, CEO of the Friedman Group, a Colorado-based consulting and training firm, expects an increase in the use of self-checkout as a way to stem customer frustration, and Stanek expects to see more “assistance devices,” such as interactive directories, throughout stores and even attached to shopping carts.

The need for more knowledge about shoppers extends to owners and developers, too. “The mall side is realizing that they have to help retailers to be better retailers. There is more partnering going on,” says Szymanski.

Developers are driven by the knowledge that new generations of Americans don't approach shopping in the same way as their elders. “What worked yesterday doesn't work today and won't work tomorrow,” says Yaromir Steiner, president of Steiner + Associates of Columbus, Ohio, a developer of lifestyle and urban centers.

In designing his centers, Steiner makes good use of the vast amount of demographic and psychographic information that's now available — an important tool given the changing face of America, especially the growth of ethnic communities. In addition to those yardsticks, “You look at what works, at what has succeeded elsewhere,” he says.

“You see a greater reliance on research and analysis at every change of direction,” Steiner notes. “This is when it's most important, and when you need more analytical work.”

Among retailers, says futurist Weiner, real change in customer relationships will come only “with a different way of thinking and a new vision.” For that, she urges managers to think not about “learning curves,” but “forgetting curves” — in other words, to consciously work to abandon old ways of doing business in favor of new ways learned from the customers themselves.

The problem, she says, is that retailers are afflicted with “educated incapacity,” meaning that they know so much about their business that they are incapable of seeing it with fresh eyes. She says successful change comes only when retailers learn to see their world — and their customers — “through the eyes of an alien or a child.”

For example, some retailers are behind the curve in targeting ethnic minority shoppers, particularly Hispanics. (For more on the preferences of these consumers, see the cover story The New Face of Retail in our February issue.)

Whether there will be a long-term change in retailers' relationships with customers is yet to be determined. But it's clear that the industry will have to find ways to satisfy more people more often, as soon. But how?

“It's easy to say, ‘Give them what they want,’ but you can't always do that,” says Harry J. Friedman, CEO of the Friedman Group, a Colorado-based consulting and training firm. “I think it's very simple. Take them one customer at a time, and treat every one like they're precious.”

Pat Malone

Location: Powder Springs, Ga‥
Profession: Retired
Age: 79
Annual income: $40,000-$45,000

There's nothing like getting your first paycheck and splurging on a new wardrobe. Fresh out of the U.S. Navy — and uniform — Pat Malone spent every cent on clothes after landing a job as a civilian trainer for the U.S. Air Force. “I needed business clothes,” she says.

That was nearly 60 years ago. Since her retirement from Delta Airlines in 1994, Malone who makes do on Social Security and a pension, is more likely to spend money on presents for her three daughters and nine grandchildren. She also maintains a three-bedroom home. “I deal with money totally differently now,” she says, though she occasionally splurges on jewelry and cruises.

Make no mistake, Malone is not your typical grandma. When she's not helping organize a juvenile Diabetes walk or working as a board member of Goodwill Industries of North Georgia, she's likely driving her white Grand Marquis to meetings of the many organizations in which she's involved. Recently, she racked up 1,400 miles driving to an Ohio convention, followed by a family visit to Michigan.

Since hip- and knee-replacement surgery three years ago, she's had to slow down a bit. If she spends much time on her feet, she needs to use a motorized wheelchair/scooter. Since it takes 20 minutes just to load the scooter into her car, it's not easy to, say, just run out to buy a pair of pantyhose. So grocery shopping becomes a once-a-week event.

Limitations also keep her out of Wal-Mart, since the chain does not offer scooters and its aisles are typically too crowded. Malls and department stores are also a challenge; Malone hasn't been to either by herself in years. “I would love to shop in Bloomie's,” she sighs, saying it's too difficult to load the scooter. Same thing for Kohl's. Though the aisles are wide, they don't offer scooters.

Her favorite stores are Eckerd, Kroger, and Target. Her advice to retailers? Maintain an eagle eye on service. For example, she befriends employees in stores she visits frequently so she can get help reaching items on high shelves.

“You can tell, I'm used to ordering people around,” Malone says. “I'm a fanatic for good service no matter where it is.”
— Renée DeGross

Doug Miller

Location: Tallmadge, Ohio
Profession: High-school student, pizza-maker
Age: 17
Annual income: About $2,000 to $3,000.

While his parents might say it's anyone's guess what's going on in Doug Miller's mind, they would likely be surprised by how astute he is about marketing and branding.

He describes his peers as “walking billboards,” with designer logos plastered all over their clothes. “It's a good marketing ploy,” Miller says, but, he suggests, pretentious: “I know some kids who won't wear anything but Abercrombie & Fitch. If someone gets me a shirt and I like it, I'll wear it no matter who made it.” He likes Aeropostale shirts and has a lot of them because they are frequently on sale. He'll even shop at a thrift shop, to find a one-of-a-kind shirt for, say, $2.

He's also keenly aware of how advertising can sway consumer decisions, citing, for example, a commercial for AXE deodorant body spray, where a guy walks into an elevator spraying on the product, which makes a beautiful girl go crazy. “A lot of guys are wearing that now,” he says.

He defines style as “being your own person,” but still conforming to a group's look: “Someone who wears preppy probably wouldn't hang out with someone who wears Gothic.” His friends take their fashion cues from local college students and actors and musicians. Everyday gear includes rugby, polo-style and tee shirts; wide-legged cargo or carpenter's pants; Adidas or Nike tennis shoes, Doc Martin or Timber Wolf dress shoes and leather jackets.

Miller says he shops once or twice a week. “I like getting new stuff,” he says. “And it's nice when mom takes me shopping, because she has more money. But it feels good to pay with money I earned myself.” An offensive lineman on the Stowe High School football team, he notes, “sports take a lot of time, so I can't work as much during the season and don't have much money to spend then.” During the off season, Miller earns $30 to $60 a week making pizzas at Gionino's Pizzeria in Tallmadge, Ohio, but his wages drop to $20 to $30 a week during football season, which he notes is barely enough to keep him in gasoline.

Miller says that he puts more thought into big-ticket purchases, like the $600 stereo system he wants for his car. “I save up for large purchases.”
Patricia Kirk

Gayle Slurzberg

Location: Philadelphia
Profession: Graphic designer, wife, mother
Age: 46

Gayle Slurzberg, a 46-year-old wife, mother, and graphic designer for the Free Library of Philadelphia, takes on the role of family COO when she shops.

She carefully tracks the bottom line, keeps outlays to a minimum, monitors the price/value equation, maintains a tight schedule and knows just what her customers — her husband and three daughters — want.

Shopping, for Slurzberg, boils down to value and time. “I'm not the type of person who really has that much disposable income to make it a hobby,” she says.

Shopping trips are carefully planned. She tries to limit excursions to three times a week — evenings after work and on Sundays. That includes two trips for groceries and one for other family needs. She may make just a single stop each trip, generally for no more than an hour. “If we're going to go buy shoes, we just go buy shoes.” Usually, Slurzberg shops alone. “I'm pretty good at figuring out what my family wants.” If she were more organized, she says, she would clip coupons and schedule trips to wholesale clubs.

She especially likes Bed, Bath & Beyond and department stores Strawbridge's and Macy's because, she says, it's “easy to find different things — like clothes, cosmetics and shoes. The quality tends to be pretty good, and the prices are kind of middle to high.” She also favors discounters Burlington Coat Factory and T.J. Maxx.

Customer service is important, and she decries the lack of it. “(Consumers) really are kind of trained not to receive any, so I don't expect it,” she says. On a recent trip to Marshall's, for example, she found much of the merchandise “all mushed,” a real turn-off.

Slurzberg's advice to retailers? Hire people who have experience and provide good service, but not if it means raising prices. “That's the retailer's problem,” she says. “If they want me to be happy, to come back and to buy, then they have to supply the customer service. Also, keep the store well organized, and offer a variety of sizes, not just Size Two.”
Howard Reill

Rod Austin

Location: Longwood, Fla.
Profession: Pharmaceutical sales rep
Age: 31
Annual income: $110,000

For Rod Austin, “Shopping is an extreme pleasure. I savor every experience,” says the single pharmaceutical sales rep. Clothes are his passion. “I don't draw or paint, so putting together an outfit is my form of art expression.”

It's also a sport — finding that perfect designer shoe or shirt by browsing at his favorite discounters — Marshalls, Ross and T.J. Maxx. His parents instilled in him the importance of dressing well. They also taught him brand loyalty. His mother washed clothes with Tide; so does he. Another thing they taught him is frugal shopping. When money was tight during college, he relied on outlet malls for designer duds at rock-bottom prices, but now he says their prices are too steep. Even though his high income affords him more luxury, Austin still focuses on value. It's why he avoids places like Neiman Marcus. “I can shop elsewhere and create the same look for less,” he says.

He does shop at Macy's, especially when the retailer arms him with a coupon. “During my last shopping binge there, I spent $800,” he says. “Without the coupon, I probably wouldn't have spent as much, but I found some truly good buys.” He sets aside money for occasional splurges and impulse buys, such as a $1,000 overcoat he bought for a special event this year.

Austin's coupon-clipping doesn't extend to groceries, and he rejects customer loyalty programs. “I don't want people tracking my buying habits. It's also an issue of fairness,” he says. “Why offer one price to me and another to someone else?”

Advertising circulars typically don't sway Austin, unless he's in the market for infrequent, big-ticket purchases, like a computer or a lawn mower. “Retailers have flooded the market with too much advertising and it's lost its power,” he says.

After product quality, customer service is Austin's priority in choosing retailers. Though not known for plentiful personnel, discounters have delivered outstanding customer service to Austin. “I appreciate that discounters pass the savings in personnel costs to me. Anyway, there's always been someone willing to help me when I ask.”

Hassle-free returns are important too. “I recently needed to exchange a pair of pants at Macy's. It wasn't a drama, but it could have been. Because it was easy, we can do business again.” And with Austin, it's repeat business again and again. He will keep shopping as long as retailers continue to deliver bargains, quality and the thrill of the hunt.
Elyse Umlauf-Garneau

Nathalie Ames

Location: Chicago
Profession: Real estate broker, mother
Age: 37
Annual income: $150,000-$200,00

Convenience, service, short lines and quality endear retailers to Nathalie Ames, a Chicago real estate saleswoman. Though she enjoys shopping, the single mom doesn't have time to dig through piles of clothes to hunt size tags. She's apt to think twice about returning to retailers that inconvenience her. H&M recently debuted on Michigan Avenue, for example, and she found it too crowded. “I won't go back for awhile,” she comments.

She's from the “don't-fix-it-if-it-ain't-broke” school, so she's loyal both to brands and retailers. Moreover, she remembers good customer service and goes back to retailers that handle errors — overcharges, for example — politely and efficiently.

Marshall Field's and Mark Shale have won her business for clothing purchases. One Mark Shale salesperson calls Ames when she spots new arrivals that fit her tastes, and always delivers in a pinch when Ames needs formalwear for a special event.

Despite an annual income of $150,000 to $200,000, Ames won't pay the steep prices at designer boutiques. “I'd rather go to Filene's.” She'll also visit outlet malls, but only if she's in the mood to shop and only if she's driving by a mall. Her favorites: Ralph Lauren, Donna Karan and Coach.

Target is her pick for low-priced, impulse shopping. She roams the aisles with her nine-year-old daughter, Laura, to see if they discover something cool. Her expectations of discounters: cleanliness, good prices and easily navigable aisles.

Costco gets her business for bulk household merchandise, food, office supplies and prepared foods she sets out at real estate open houses. She also frequents regional grocer Dominick's. Because of sky-high prices, an independent neighborhood grocer only serves Ames' last-minute needs.

But neighborhood shops that feature clothes, handmade jewelry and quirky imported goods are also beneficiaries of Ames' spending. “I like to support the local community.”

And though she likes a bargain, she's not a coupon clipper. “They're too much of a hassle.” Ames prefers swiping a loyalty card at checkout to garner savings. And other than checking Sunday ads for prices on big-ticket items such as TVs and computers, she largely ignores advertising. She will, however, plan around major sales at favorite retailers. The North Face, for instance, has an annual clearance and she'll wait for it to buy a new tent.

Her daughter recently began wielding power in buying decisions. “We have a karaoke machine, something I never would have.”
Elyse Umlauf-Garneau

Retraining Consumers

Here's one example of how retailers have changed strategy based on studies of their customers' behavior:

For years, retailers observed, many holiday shoppers waited for last-minute slash-and-burn sales to buy gifts, which meant stores were losing full-price business — and, as a result, profits.

What to do? Many developed new and more subtle promotions that require customers to pay full price for some merchandise in order to get money off future purchases.

One approach that weans customer off the habit of waiting for late- and post-season sales is the use of coupon bounce-backs.

Case in point: American Eagle is offering shoppers this deal — spend $50 and get $15 off your next purchase of $50 or more.

Coupon bounce-backs are particularly useful at holiday time because they entice consumers in earlier in the season without having to give away the store.

Other promotions include discounts on second similar items after buying one at full price, and discounts to priority customers or those who have reached certain spending levels.

Such promotions offer a discount without a hard markdown, enabling the store to look less desperate and offering the retailer more flexibility, says Merill Lynch equity analyst Mark Friedman.

“The bottom line,” he says, “is that with mall traffic less than robust, the need to drive what traffic there is into their stores is imperative.”