Of course, this is no ordinary downturn. Yes, tax rebates from the federal government pushed retail sales higher in May than many economists had expected. But consumers will be paying lofty prices at the gas pump and supermarket long after the stimulus checks stop arriving. That leaves less for discretionary buying. “Moms who used to buy every member of the family their own brand of shampoo are buying one big cheap one,” says Sheila McKusker, who notes that, in 20 years of tracking the retail industry for market researcher Information Resources, she’s never seen such a profound or sudden shift in shopping behavior. In May, consumer confidence hit its lowest level since 1992.

Cutting prices may not be enough to get people into stores. So while Lowe’s is offering low-cost versions of Shop-Vacs and air purifiers, the home-improvement chain has also launched an advertising campaign to reposition itself as something that looks a lot like the local hardware store (the very mom-and-pop shop that Lowe’s and Home Depot helped drive out of business). In one TV commercial, a father and his sons marvel as a Lowe’s employee cuts duplicate house keys.

In many cases, retailers are going after a different customer altogether. Earlier this year, Gap’s troubled Old Navy chain began pitching trendier clothing at twentysomethings. Sales continued to tank, and the retailer is refocusing its message on price. Now the ideal customer is the budget-conscious mom shopping for herself and the family. Unlike this spring’s safari- and surfer-themed clothes, the fall line will include more basics, and TV ads now emphasize price over style.

Saks Fifth Avenue, too, is focusing more on value. This fall, the upscale department store will reintroduce a private-label line for women in their 40s and 50s. Called Real Clothes, the skirts, blouses, and dresses will be priced 20% below the store’s average brand-name items. “For a high-end customer, it’s not about a trade-off between food [and] gasoline,” says Saks CEO Stephen I. Sadove, “[but] how they feel about their net worth.” He also notes that, during tough economic times, consumers expect better service, too. That’s why Saks is putting more of its sales staff on commission—the better to compete for shoppers’ affections.

As they seek to hang on to existing customers and attract new ones, retailers are teaming up. In May, Macy’s announced it would partner with FAO Schwarz to bring toys back to its stores. Over the next two years, Macy’s will put an FAO Schwarz inside 685 of its locations. “If gas prices continue to rise, being in Macy’s is a really smart move,” says FAO Schwarz CEO Edward M. Schmults. “Customers aren’t going to want to drive to five different places looking for products.” The partnership also allows Macy’s to lease excess space and gives the toy retailer access to millions of new shoppers.

J.C. Penney is using an existing partnership with Sephora USA , the cosmetics and fragrance merchant, to go after freer-spending consumers. Sephora has opened boutiques inside 72 (of 300 planned) Penney stores, catering to 18- to 35-year-old women who typically spend more per item than Penney’s traditional base of middle-aged moms. Penney CEO Myron E. Ullman III says he’s discounting to keep his regulars buying while Sephora lures those willing to pay full price for new products.

Even as stores scramble to broaden their appeal, they are minding their core customers. Rite Aid is offering a $30 gift card and a chance to win a year’s worth of free gasoline to customers who transfer their prescriptions to the chain . Target is pushing its cheaper private-label food and beverages. And Saks in April rolled out no-interest loans on top-drawer jewelry. As Saks CEO Sadove says: “The high-end consumer likes a deal like everybody else.”

by Jane Porter and Burt Helm

On Tuesday the company introduced Lively, an online tool that allows people to embody a cartoonish online avatar and have text-based conversations with friends and other Internet users in virtual chat rooms. The rooms can be added to any blog or Web site.

Google unveiled the new product in a post on its official blog – its characteristically understated way of introducing new features to the world. It can be reached at www.lively.com, but it is officially part of Google Labs, an area of the company’s site where it showcases projects that remain in the beta, or experimental, phase.

Lively and similar products from other companies have the potential to change the way people interact over the Web. Online chat rooms are two-dimensional – they include text, and sometimes voice and video.

Lively tries to make that conversation three-dimensional, more interactive and more fun. As if they were playing a game, users choose from a selection of unrealistically handsome or Disneyesque avatars.

They can also create their own chat rooms, which can be posted to a blog or social network profile as easily as a YouTube video.

Up to 20 people can occupy a room and chat with one another. (Text appears as cartoon-style bubbles atop the avatars.) Users can design their own virtual environments, hanging on the walls videos from YouTube and photos from Picasa, Google’s photo service, as if they were pieces of art.

Inside Google, the product was headed by Niniane Wang, an engineering manager. Students at the University of Arizona have been testing Lively for several months.

Wang wrote in the blog post that she developed Lively as a “20 percent project,” referring to Google’s philosophy that employees should spend one day a week working on projects outside of their day-to-day responsibilities.

Her spare time could cause some problems for companies with similar ideas. Second Life, the virtual world run by Linden Labs of San Francisco, is known for its much larger virtual world, where hundreds of thousands of users can enter at the same time. But it is accessible through a separate program, not a Web browser. (Lively, which works only on Windows computers for now, requires the downloading of a bit of add-on software.)

Mark Kingdon, chief executive of Linden Labs, said Second Life’s value was not just in 3-D chat but also in more elaborate environments where people can work, play, teach, and buy and sell virtual products.

“Users are highly motivated to create and transact in Second Life to the tune of almost a million dollars a day in user-to-user transactions,” Kingdon said.

Vivaty, a virtual-world start-up in Menlo Park, California, backed by the blue-chip venture capital firm Kleiner Perkins Caufield & Byers, opened its virtual doors on Tuesday. Vivaty’s product is a similar 3-D chat room that runs on Facebook and through AOL Instant Messenger.

In one version now available on Facebook, users can create a virtual dorm room and decorate it with furniture from Target.

Keith McCurdy, Vivaty’s chief executive and a former executive at the game giant Electronic Arts, said Google’s entry was a validation of the concept. He said that Vivaty could get more traction by putting its virtual worlds on every Web site – even those controlled by Google’s rivals.

“We are not beholden to any one camp or approach,” McCurdy said. “We are trying to create an open system where lots of people have branded virtual scenes.”

Google’s success is not assured, of course. Other test products it has introduced have languished, like Product Search, originally known as Froogle

With the start of the Democratic National Convention in Denver on Monday, retailers, faced with the toughest economic environment in years, have latched onto the presidential election as a vehicle for jump-starting sales.

Among the first to step into the fray: Wal-Mart Stores Inc. and Gap Inc.

Gap, the San Francisco-based apparel chain, is resurrecting its legacy white T-shirt with a nationwide “Vote” campaign. The rollout began Friday in Chicago at the Gap’s Midwest flagship on North Michigan Avenue, where makeshift voting booths lined the storefront.

Inside, shoppers lined up for free white T-shirts with the words “Vote for _____.” A clerk filled in the blank according to customers’ wishes using a T-shirt press. Shoppers have their pick of an array of press-on letters, markers, buttons and patches.

What are shoppers voting for? It’s not all Obama and McCain. Some are voting ice cream or lower gas prices or, simply, change.

The store had 300 T-shirts at 9 a.m. They were gone by 1:30 p.m. Gap’s seven-city tour moves to Philadelphia on Tuesday and runs through Sept. 11.

At the same time, Wal-Mart, the world’s largest retailer, is launching a series of television ads during the Democratic and Republican National Conventions.

The 15-second ads focus on the economy, gas prices and health-care costs, and they pitch Wal-Mart as a place to save money. The first ad airs Monday and is slated to run through Sept. 7 on cable network news and talk shows focused on election coverage.

Meanwhile, a new survey found that when asked to vote as if the election were today, shoppers that favored Wal-Mart, Kohl’s and J.C. Penney are more likely to vote for Sen. John McCain, while Macy’s and Target shoppers say they would cast their ballot for Sen. Barack Obama.

The survey, released Monday from Worthington, Ohio-based BIGresearch, also found that while Wal-Mart and Penneys shoppers favored McCain, the group was fairly evenly divided between Republicans and Democrats. Kohl’s shoppers, on the other hand, tended to fall more squarely in the Republican camp. Macy’s and Target shoppers were more likely to call themselves Democrats.

“Perhaps McCain should consider a bus tour through Wal-Mart parking lots, and Obama could use Target,” said Gary Drenik, president of BIGresearch.

How bad is it? Retail guru Mickey Drexler, dubbed the “King of Cool” on the cover of Fortune magazine’s Sept. 1 luxury issue, tells the business publication that the current retail environment is the worst he’s seen during his 40 years in the business. The CEO of J. Crew and master merchant also says the days of big-name designers are over.

“Designer goods have become much too available, either through their own distribution or through logo counterfeiting,” he told the magazine. “I see the world moving away from carrying a bag around with the designer’s initials or designer’s logo. The more you see of anything, the less special it becomes.”

When contacted, Future Group CEO Kishore Biyani said: “We have been evaluating the option of creating a new entity for our value retailing businesses.” Last year, Pantaloon Retail had secured board approvals for hiving off the businesses into independent subsidiaries that could be listed at a later date.

Under the proposal, Pantaloon Retail will be a holding company. Pantaloon officials familiar with the development said the group is examining a structure that would eventually enable it to strike a JV with a global retailer. Pantaloon Retail has been in talks with Carrefour, the world’s second-largest French supermarket group, for a JV in India.

Under the scheme of things, Future Value Retail would serve as a major supply-chain entity for all Future Group store formats and help the company prune costs, a group official said. Technically, the sourcing and back-end of the store formats would be one while the front ends would continue to operate as separate entities. Currently, all Food Bazaar outlets, comprising its food and grocery supermarket business, are located within Big Bazaar formats.

While Big Bazaar is the group’s hypermarket business and has 109 stores, Food Bazaar is a supermarket chain that has 152 stores with most of them housed adjacent to Big Bazaar. Food Bazaar’s business model resembles the value model of global retailer Wal-Mart. According to Nielsen data, Food Bazaar’s share in the FMCG space in terms of modern trade is about 28%. Pantaloon Retail is estimated to report sales of Rs 10,000 crore for 2008-09 while the combined revenues of Big Bazaar and Food Bazaar are estimated to touch Rs 5,000 crore.

A proposed joint venture with a foreign retailer would enable the Future Group access sizeable dollar funds needed to expand its business. A foreign partner will also help the group bring in more efficiency in sourcing and logistics, helping it drive down prices and boost margins. Besides Big Bazaar, the Future Group runs Food Bazaar, KB’s Fair Price shops, Pantaloons, Central, Home Town, eZone and Aadhaar. The Pantaloon Retail stock closed at Rs 130.15, up 5.46%, on the BSE on Monday.

In a challenging consumer environment, bargain hunters are flocking to modern value-retail formats like Big Bazaar, Food Bazaar, D’Mart and More, which have been coming up with discount offers to attract customers. This reflects a global trend, wherein value-retail formats are growing despite the overall slowdown in the economy. Last month, US-based Wal-Mart reported a strong 5.1% increase in same-store sales (excluding gasoline sales) in the US, even though lifestyle chains, like Target, Macy’s and Abercrombie & Fitch, suffered a drop in sales.

RETAIL BLISS

Pantaloon may use the new format to strike JV with France’s Carrefour
A proposed JV would bring in the required funds for Future Group to scale up its business Presence of a foreign partner, in all likelihood, will have a positive impact on the efficiency level, which would bring down prices and help margins

MINNEAPOLIS–(BUSINESS WIRE)–Target (NYSE:TGT) today announced the opening of 23 new stores. Of these, four are general merchandise stores, 17 are general merchandise stores with expanded food options and two are full-grocery SuperTarget stores. All 23 stores will celebrate their grand opening on Sunday, July 26, 2009.

General Merchandise Stores

Locations receiving a general merchandise store include:
* Kona, Hawaii
* Warren, Mich.
* Bronx Terminal, N.Y.
* Cheltenham, Pa.

The general merchandise stores feature a blend of everyday essentials including household products, electronics, clothing, and an assortment of food and seasonal merchandise. These stores offer amenities such as a Starbucks®, Target CaféSM and Target PharmacySM. Target also balances a wide range of national brands with its own Target brands like Archer Farms™, Choxie™, Market Pantry™ and up & upTM. Each general merchandise store employs 100-250 team members and is approximately 127,000 square feet.

General Merchandise Stores Receiving Expanded Food Options

Locations receiving an expanded food format store include:
* Vista South, Calif.
* Exeter Township, Pa.
* Lisbon, Conn.
* Hanover Twp., Pa.
* Spring Hill East, Fla.
* Lower Nazareth, Pa.
* West Melbourne, Fla.
* West Pottsgrove Twp., Pa.
* Cedar Falls, Iowa
* Huntsville, Texas
* Hammond, La.
* Hampton, Va.
* Las Vegas N. Decatur, Nev.
* Martinsburg, W.Va.
* Greenland, N.H.
* Waukesha South, Wis.
* Chili, N.Y.

The 17 expanded food stores offer all of the merchandise found in our general merchandise stores with the added convenience of fresh food. This new format has an open-market layout and features new food additions including basic fresh produce, fresh meat and bakery goods. Each expanded food format store employs 100-250 team members and is approximately 135,000 square feet.

SuperTarget Stores

Locations receiving a SuperTarget include:
* Murrieta North, Calif.
* Wylie, Texas

SuperTarget stores offer a complete, one-stop-shopping destination by combining the convenience of a general merchandise store with a full-scale grocery. Additional merchandise options include a complete assortment of fresh produce, and an on-site bakery and deli. Each SuperTarget employs 200-300 team members and is approximately 186,000 square feet.

About Target

As of Sunday, July 26, Minneapolis-based Target Corporation (NYSE:TGT) serves guests at 1,719 stores in 49 states nationwide and at Target.com. Target is committed to providing a fun and convenient shopping experience with access to unique and highly differentiated products at affordable prices. Since 1946, the corporation has given 5 percent of its income through community grants and programs like Take Charge of Education. Today, that giving equals more than $3 million a week.

Note: Target welcomes the media to its stores. To contact your local store about store events, merchandise and community programs please visit “Find a Store” at www.Target.com. Images can be found at www.Target.com/Pressroom under the category “Target Stores.”

DemandTec provides retailers and e-commerce companies with tools to transact, interact, and collaborate on core merchandising and marketing activities. DemandTec’s cloud-based analytics software allows businesses to examine different customer buying scenarios, both online and in-store, so retailers can spot trends and shopper insights to make better price, promotion, and assortment decisions that increase revenue and profitability.

For example, retailers can predict how consumers will respond to a price change before making the change. Or a merchant and supplier can work together to understand how one shopper segment differs from another to create a targeted merchandise plan.

DemandTec’s use of cloud-based price, promotion and other merchandising and marketing analytics helps companies better define the best price points and product mix based on customer buying trends. Essentially, DemandTec uses data analysis and forecasting to make the retail world smarter.

DemandTec customers include Best Buy, ConAgra Foods, Delhaize America, General Mills, H-E-B Grocery Co., The Home Depot, Hormel Foods, Monoprix, PETCO, Safeway, Sara Lee, Target, Walmart, and WH Smith. DemandTec also has a portfolio of 31 patents in the areas of pricing, response analysis, and promotion analysis.

For IBM, the acquisition is all about its smarter commerce initiative. IBM estimates the market opportunity for Smarter Commerce at $20 billion in software alone.

IBM’s recent acquisitions include Algorithmics, and Tririga.

Mobile payments’ progress has been held back by the sheer number of vested interests battling to take the upper hand in driving the platform. This is seen best in the US, where the main parties each have one or more initiatives – three of the top four cellcos in Isis; Google Wallet; schemes led by the credit card giants such as Visa; and separate programs by PayPal and others. Now the retailers, too, want a say, and about 25 stores, including Walmart and Target, have formed a consortium to develop their own m-payment system.

According to a report in the Wall Street Journal, citing several unidentified sources with direct knowledge of the deal, the retailers are eager to limit the influence of either Google or the operators in this area. They would have various advantages in bringing store-based mobile payments, such as NFC-enabled systems, to market. They have an existing trusted brand for consumers, and would get round one of the major blocks in NFC’s path – merchant indifference or unwillingness to deploy terminals.

There are few details as yet, but Target said in a statement to the WSJ: “We are exploring potential solutions that would help us to deliver the fastest, most secure mobile-payment experience possible for our customers.”

However, Google claims 22 large US retail chains now support its Wallet initiative, even though that suffered recently from security issues, and is available only on the Sprint network and the Samsung Galaxy Nexus handset. Google is working with MasterCard and its PayPass network, while Isis is working with most of the major card processors, including Visa, MasterCard and Amex, and will start trials of its services this year.