Did retailers doom their holidays with deep discounts?
During the holidays, retailers hope to keep sales profitable by getting shoppers into stores without discounting too heavily. But a few studies on holiday spending indicate that this year’s discounts were some of the deepest.
A study conducted by DynamicAction Inc. and reported in The Wall Street Journal, indicated that receipts featuring promotions increased 79 percent year-over-year in November 2016. The receipts from the first week of December showed double the deals from the previous year. Another study by Nomura Instinet indicated that of 21 retailers tracked, only Gap’s Athleta and Ulta Salon Cosmetics & Fragrance ran fewer promotions in the first weekend of December 2016 than in that window the previous year.
Other research backs up the assertion that the holiday discounts are getting so deep that they’re undermining the sales volume they push. According to the National Retail Federation, three million more people bought something this Black Friday season than last, but total spending fell 3.5 percent, reported 24/7 Wall St. In the way of an explanation, analytics firm EDITED noted that the number of discounted items rose 20 percent and the average price reduction was 8 percent steeper than the previous year.
Deal dependency is a year-round problem for retailers that has grown since the recession. Retailers who have attempted to get off the discounting bandwagon have suffered. For instance, J.C. Penney’s attempt to shift from a promotional model to EDLP under the leadership of Ron Johnson had notoriously catastrophic results for the company.
In fact, the allure of deals has grown so strong that some big name retailers have gotten themselves into hot water pushing deals that weren’t really deals. A series of recent lawsuits have centered around the practice of posting “original prices” for products at which they are never actually sold.
And during the holiday season, when customers expect even more impressive promotions, that translates into wanting to see an unimaginably low price tag. Being able to create promotions that draw, whether online or in-store, without dropping prices below the threshold of profitability, may be the key to allowing both customers and retailers to have a happy holiday.
- 2016 Is the “Year of Promotions” for Retail, with 52% Increase in Offers – DynamicAction
- Retailers’ Discounts Run Deeper This Holiday Season – The Wall Street Journal
- How Heavy Discounts Eroded Holiday Weekend Sales – 24/7 Wall Street
- Will sales promotions be the death of department stores? – RetailWire
- Will getting rid of list prices help or hurt Amazon? – RetailWire
DISCUSSION QUESTIONS: In what ways are the pressures to employ discounts to drive sales during the holiday season different than at other times of the year? What advice do you have for retailers attempting to drive holiday sales without losing needed margins?