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[11 comments]

Should markdown codes be better hidden?

April 21, 2014

An age-old practice still in wide use, price codes on tags continue to alert staff when an item is heading to clearance. Now, blogging snoops are regularly telling the shopping world about each store's unique code.

Probably the biggest surprise, however, is that Costco readily admits to using such a pricing alert system.

"It's more for efficiency, for the employees," Richard Galanti, the wholesale club's EVP and CFO, told Reuters. "It's not any sort of secret agent stuff. But you see it on a blog and people think it's a secret. It's just a way of moving some merchandise, to help the fork lift operators and the stocking clerks."

Under Costco's system:

  • If a price at Costco ends in 99 cents, it's full or regular price;
  • If a price ends in 97 cents, it's usually "a buyer designated markdown," says Mr. Galanti;
  • If an asterisk appears in the upper right corner of the sign, then it's on clearance and likely the lowest price. Said Mr. Galanti, "That's what we call a pending delete. Sometimes an item's not selling well and we want to move it out, or it could be the end of the season."

Mr. Galanti notes that the pricing differential is often relatively minor at Costco and shoppers may want to buy the newer item at full price. He added, "The question is, do you want something at the end of its season or at the beginning of a new season?"

Kyle James, who identified the "Costco Code" on Rather-Be-Shopping.com, estimates that he and his wife have saved at least $300 over the last seven months after deciphering the code. His website also includes decoded prices on American Eagle, BJ's, J.C. Penney, Gap, Home Depot, Kohl's, Office Depot, Old Navy, PetSmart, Sam's Club, Target and Sears.

Most of his information, he told Reuters, comes rather easily from store staff. His website also includes printable cheat sheets for consumers to carry while shopping.

Other websites that have run articles decoding price codes include consumerist.com, lifehacker.com, and thekrazycouponlady.com. Thekrazycouponlady.com has Target's apparent markdown schedule, or when certain categories go on sale each day of the week.

FINANCIALS:     [NASDAQ:COST] [ ]

Discussion Questions:

Does it matter if the general public is becoming more knowledgeable of major retailers' clearance practices? Is there an optimal clearance-alert system for workers?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Should clearance price codes designed for staff be more or less transparent to consumers?

Comments:

I don't think it matters. In fact, some retailers take advantage of marks as promotional events very directly - not only do they not hide it, they advertise them. Kohl's is probably the best case study of a retailer who has capitalized on markdowns as a promotional event. Yes, consumers could potentially game the system, playing "markdown chicken" with retailers and waiting until the item they want gets marked down to a price they're willing to pay. But they're also risking getting left empty-handed if other consumers snatch it up before it gets to that waiting-game price.

In the end, what is the purpose of a clearance? It's to get rid of merchandise. If consumers want to feel like they're retail spies that have cracked the code, more power to them. Kyle James estimates that his family has saved over $300, but is that on stuff they would've bought anyway, or things that they snatched up because they perceived them to be a great deal, whether they needed them or not? And how does that hurt Costco, who's just trying to clear the stuff out?

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Nikki Baird, Managing Partner, RSR Research

We now live in a transparent world; if Costco needs to communicate its markdown strategy to in-store employees, they had better plan for the world at large to also know it. It's simply too easy for one of the 185,000 Costco employees to share an internal document with one blog, which then makes the information easily accessible to every Costco shopper. The world in which retailers can keep business strategies secret from customers are long gone, and retailers shouldn't even try, as it erodes trust.

Costco's current system actually works well. It's easy for employees to decode, it's well known and used by Costco's most advanced bargain shoppers. And it doesn't give away margins to casual shoppers who have higher priorities beyond waiting for a product to go on clearance.

The days of obfuscation as a pricing strategy are over. Retailers should imagine their best customers are sitting in the conference room with them as they develop and articulate their pricing strategies.

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Jason Goldberg, VP Commerce Strategy, Razorfish

No, it doesn't matter. Consumers, retailers and their employees are in an endless game of doing "things" for "things' sake" that really don't matter much.

To the second question, I opine, "Be obscure clearly."

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Gene Hoffman, President/CEO, Corporate Strategies International

I am all for transparency and I contend it may make for a more profitable price mix. Give the shopper the choice..."I can buy it now, while I am here for $10, or I can wait until next week, make another trip to the store, and buy it for $7, if it is still here."

The challenge, of course, for the retailer is inventory management. The retailer's objective should be to disappoint every shopper that waits. But, the retail practice when ordering new merchandise is to consider what has been sold at deep discount and filling stores to that level again.

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Gene Detroyer, Professor, Independent

Most of this practice has gone on since I was a kid. Seasonal items are known for big markdowns, as every retailer needs to clean out stuff at the same time every year. My mother knew when to buy shoes, winter and summer clearances of clothes for all six children, and her neighbors discussed with each other about all the sales at J.C. Penney, and the hardware store sales on lawn mowers, etc.

It is now incredibly easy to know when a incredible deal hits the streets, as the internet will provide this info in seconds.

The system has gone from word of mouth, to instant online for everyone to see.
It is Black Friday every week in retail today, as all of us are trying to figure out way to bring customers into our stores, and still turn a profit at the same time.

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Tony Orlando, Owner, Tony O's Supermarket & Catering

First of all you must understand what a markdown is. It is not designed to do anything but begin the process of freeing up the merchants capital for investment elsewhere. When an item is marked down, the merchant is sacrificing profit in exchange for an increase in cash flow. Assuming that any markdown code is only knowable AFTER a new lower price is assigned by the merchant, then one would assume that merchant has determined that he/she can produce greater return by investing the capital that is tied up in the marked down merchandise elsewhere.

Now let's all realize that discounts aren't necessarily the same thing as markdowns. A discount is a temporary price decrease, a markdown is a permanent price decrease. The former is designed to deliver increased sales, attention and/or traffic, the latter is designed to rid a merchant of inventory.

Ed Dennis, Sales, Dennis Enterprises

Well, it is happening and will continue to happen. Does the information make a difference to consumers? Does it impact their shopping behavior? Then it matters.

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Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

Let the snooping shoppers save and help the retailers move out markdowns. There will always be shoppers that figure out another one of our retail secrets and share it on the web. This type of shopper is not out to save money, they are just addicted to keeping too busy and have found their calling (they are so busy, their kids are probably hungry and they have no friends).

At least once a year change all the codes for 1 week and mess up their process.

Retail ... the fun side!

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Tom Redd, Vice President, Strategic Communications, SAP Global Retail Business Unit

Transparency about markdown practices holds very little downside for retailers. If anything, visible codes only serve to highlight the values for shoppers who are in on the proposition. It might help move some products off the shelves a little faster.

Of course, retailers who want maximum visibility have the option of simply flagging clearance deals with prominent shelf tags. It's an extra task, but perhaps minimally more effort once they are already changing out the price labels on markdown items.

There are certainly options available for any retailer who feels that hiding this information is in its best interest. A mobile scanning app might do the trick, although I'm sure it would be less convenient than just knowing the code.

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James Tenser, Principal, VSN Strategies

It doesn't matter. There are products that the consumer will only find appealing if they are marked down -- that yellow sweater doesn't look too bad at 30% off and the neon green pants are worth it at clearance price.

Ultimately, the retailer needs to sell products, and if that's a problem for the retailer then it needs to do a better job in selecting products that will sell at regular price. There is no need to change the system, that's not the problem.

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Carlos Arámbula, Managing Partner, MarcasUSA LLC

Clearly, there continues to be a shift of power from brands and retailers to the highly engaged and connected consumer. It's just a fact of retailing in the 2010s. Retailers can accept this, like Costco has, or try to obfuscate to their detriment. Remember when JCP switched back from the Ron Johnson-implemented EDLP...I have photos of EDLP price tags covered by stickers denoting a higher price. Talk about poor execution.

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Kelly Tackett, Research Director, Planet Retail

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