Try this experiment: Look around your town and think back to what it looked like 10 years ago. Chances are, the stores that line the streets or anchor the malls are different. Circuit City, Linens-n-Things and Radio Shack are all gone. In their place are names like Nordstrom Rack, Saks Off Fifth and Zara.
It's a physical representation of how the consumer has changed over the last decade. The financial crisis of 2008 left an indelible mark on consumer behaviors that still affect how Americans spend today.
"Cheap was in," recalled Larry Meyer, who worked as chief financial officer at discount retailer at Forever 21 at the time. "We were all shocked. I stopped doing real estate deals, ... but it wasn't bad for everyone if you had the resources to take advantage of it. But even the luxury guys had trouble."
The collision of the millennial generation beginning to enter its earning years and the biggest economic downturn since the Great Depression created a shopping base markedly different from its predecessors. Some of those changes were indirect — millennials had a hard time finding a job, thus delaying their entrance into adulthood and changing their shopping patterns.
Declining sales made retailers face a reckoning that the industry had added too many stores when times were good. Technology further drove home the reality long after the recession ended, and prolonged recovery.
Other shifts, like the drive for a deal, were more direct. Lehman Brothers filed for bankruptcy on Sept. 15, 2008, just before the holiday season, signaling the start of the crisis. The crash of an esteemed bank caused consumers to hunker down, leaving retailers with so much product they were forced to slash prices by as much as 80 percent to draw shoppers in, not just the typical half-off deal. Those sales extended far beyond Christmas. The discounting taught consumers there was no need to pay marked-up prices or even list prices. Those changes stuck around.
"We've conditioned consumers to wait for the deal," said Rod Sides, who heads Deloitte's U.S. retail practice.
That focus on deals and discounts affected retailers on the high and low ends and laid the groundwork for discount and off-price retailers to thrive. T.J. Maxx was a key beneficiary of this shift, and its stock has outperformed the industry average by 6 percent, on average, over the past five years, while Ross Stores shares outperformed by 17 percent.
Department stores like Macy's, Saks and Nordstrom, meantime, began to push their own discount models, as their premium stores saw growth flatten. Nordstrom this past quarter generated roughly 30 percent of its sales through its off-price business, Nordstrom Rack.
Luxury brands have made their own changes. Players like LVMH were caught off guard during the recession when flash sale websites like Gilt Groupe sprouted up, offering their excess inventory at a far steeper cost. Those brands had not previously had to focus on limiting their inventory or building an online presence.
In the years since — and in preparation for the next recession — LVMH rolled out websites for brands like Christian Dior, Bvlgari and Marc Jacobs, to create their own channels directly to consumers. That line allows them to better control product and price.