Bealls Test Drives Employee Discount Promo
By George Anderson
Conrad Szymanski, president of the Bealls department store business, recently told the Sarasota Herald-Tribune, “There’s not an original idea in marketing.”
Of course, Mr. Szymanski is not particularly concerned if a marketing idea is original as long as it brings customers in the store who leave with merchandise purchased at Bealls.
That’s why, after seeing how well the employee discount promotion program worked for General Motors, Mr. Szymanski thought it was worth a try at his stores.
Yesterday, the department store reduced prices on all its merchandise by 20 percent — the same price paid by employees — in a one day event to try and capture “last-minute purchases by parents before their children go back to school.”
Ellen Davis, a spokesperson for the National Retail Federation, said, “I’m surprised that a department store would pick up on the promotion. Then again, department stores have been among the most aggressive.”
“As a retailer you need to balance an enticeful promotion with fear of giving away the store,” said Ms. Davis.
Another concern, said Ms. Davis is, “If a consumer can get an employee discount without being an employee, what’s the point in going to work for the retailer?”
Moderator’s Comment: Will employee discount programs for regular consumers be as successful in other areas of retailing as in autos? Do the cons outweigh
the pros of this type of promotion?
We would take issue with an argument that has come up more than once when discussing employee discount programs and that is why someone would go to work
for a retailer if everyone gets the same discount.
The answer is simple — they need a job and an income. While there may be some more affluent consumers who are looking for something to do and go to work
at a department store for a discount, the vast majority of people working in retail do so because they need a job.
As to employees paying the same as non-employees for goods, it is fairly standard practice in retailing for employees to receive their discount based on
the price paid by consumers (even sale prices). We don’t know if that is the case here or in the auto promotions, but it is a question worth asking those running the employee
discount events.
– George Anderson – Moderator
In a word — no. The “employee discount” gambit worked for auto manufacturers because a) it is a huge ticket item, b) the “A Plan” for employees is legend and c) consumers generally believe they are never getting the very best price out of car dealers. The only significant impact to come of widespread adoption of “employee discount” pricing by other retailers will be to destroy its cache and to reinforce to consumers that the only place to get the “lowest prices every day” is Wal-Mart.
Getting 20% off for one day doesn’t sound too impressive. Stores do that the day after Christmas all the time. Wal-Mart is about 20% cheaper than its competitors 365 days a year. Smart shoppers will find ways of beating the employee discount, whether it’s autos or general merchandise. I really doubt that anyone chooses an employer based upon their employee discount. In reality, there is no discount. If everybody gets it, then it’s the regular price. The real employee discount is what the owner of a car dealership pays for his car or what the owner of a retail store pays for their merchandise. That’s the real employee price, not what is advertised.
There’s sales and there’s sales. The employee discounting program adopted by the automotive industry makes for great press and commercials. But, in the cold light of day, the car companies are losing money on the deal. I don’t think this is exactly the model other retailers should follow.
Some retailers’ employee discounts are lower than the sale prices, anyway. Not all stores have “doorbuster” employee discounts.
One of the appeals to the GM employee discount plan is that the price is no-hassle and clearly stated. GM has known for years, since the start of Saturn, that most people don’t like price negotiation. GM ignores that lesson, and continues to allow its non-Saturn dealers to continue “price harassment.”
GM’s refusal to learn from its Saturn pricing model, as well as its upcoming cancellation of the “employee discount for everyone” (which raised sales 41% in 1 month) means that its place in the Sales Prevention Hall of Fame is secure.
Since most non-auto retail stores have clearly stated prices with no negotiation, the “employee discount given to the public” has to be a superior deal (not a deal that is inferior to a regular “sale”).
What’s in a name? That which we call a sale,
By any other word would sell as sweet.
GM was able to convince consumers that the employee discount was a big deal, and maybe for a purchase in the amount of a car, the dollar savings are enough to matter. Employee discounts for a pair of pants? Less interesting, and these discounts are available anyway other times of the year.
Applaud Bealls for jumping on the marketing wagon on this promotion, but I think it won’t take long for consumers to see through the marketing. Too many of these types of promotions dilute the idea.
The employee discounts for the automakers come at a high price. If you look at the two situations, you will find that, for the retailer, the problems are not identical to the auto industry. In the auto world, there were union contracts that were to pay the hourly workers 75 to 80% of their wages if the factories were shut down. Therefore, with the risk analysis, it was far more productive to the cash flow to cut the prices at the risk of margin. Yes, there are the benefits of the GM sales increase of +40% in July. But again, at what cost?
For the consumers that purchased their beloved automobiles prior to the sale, what will happen to the residual values in 2 or 3 years? Will the “employee cost” vehicles be able to retain their high value at the lower price point? Private sales will undercut the book values and accelerate the depreciation.
For retailers, the situation is different. For most retailers, except for private label items, there are no worries of closed factories and continuing wages. The issue of a glut of inventory comes from the competitive marketplace, the way in which the forecasts were generated, the way products were purchased and the cost/timing of the supply chain.
Therefore, better ways to track the activities of the consumer and feed that demand data back into the Supply Chain Network will render higher margins. Capital can be freed for other purposes, inventory levels will be reduced and in-stock positions need not suffer. These margins will be better than a sale. If we spend our time training the customers to “wait for the employee sale,” then we are only hurting the industry as a whole.
After all, we figured out that the automaker employee sales pushed the prices higher in New England… how long do you think it will take for us to realize the “retail employee discount” is lower than the old sales? Gimmicks are just that, gimmicks. Your best bet is to invest in fixing the longer term problems and not focused only on short term accomplishments.
This has been discussed before. Here are two models I am personally familiar with that work.
1. Nordstrom: the store is only on-sale during the half-yearly events, and several times for seasonal clearance. For all non-promotional business models, offering preferred customers employee discounts for the day is a very effective way of generating sales. Nordstrom has seen significant sales elasticity when running this type of event. Note, to “preferred customers only.”
2. JCP: where credit card holders received an invitation to participate in Friends and Family night. This discount was in addition to the current sale prices, but not applicable to clearance. Again, JCP experienced significant sales elasticity to this promotion.
This is not advanced physics. Two basic models govern retail: promotional and non-promotional. There are two executions noted above that have been proven to work. Why reinvent a wheel?
SEARS, KMART, SHLD. Having had Friends & Family Night sale with everyone walking through the doors getting 10% off. Everythig that an employee got was a big deal, one time.
Then these retailers started to have them 2 or 3 or more times a year. The customer said, if I miss this one, then I will go to the next one,
Just look at the auto dealers sales now. It is over – we extended it again, etc.
Are you trying to reduce inventory?? To introduce new merchandise?
As a friend of mine told his son: “How long can you sell a dollar for ninety cents and still stay in business??
As with many promotions, they run a good thing into the ground, and then no one cares when the sales are, and I, for one, doubt if it is a savings.
Uh, how did yesterday’s sale work at Bealls? Do you suppose the Sarasota Herald-Trib will fill us in, eventually, on the success of this promotion for the retailer used as the primary example in their story? They forgot the punch line.
What many seem to be missing is that employee discount sales on new cars are manufacturer discounts, NOT retailer discounts. These promotions cost the auto dealerships nothing. To create the same promotional model for a department store (for an accurate comparison), all the store’s suppliers would have to discount their products 20% at the same time, and the retailer would simply pass those savings along. The cost to the retailer would then be nothing.
I don’t believe there is any population in any other country that is so discount-oriented as the Americans. Nor do I think they necessarily look into the small print and compare whether employee discounts are comparable to those offered to shoppers. As far as most of my American friends and relatives are concerned, if you tell them they’re getting a discount they believe it. They may shop around for a better offer but unless you can genuinely compare like for like, it’s all the eye of the beholder again.
Considering margins at some retailers are 50%+, 20% is not such a deal for employees. Retailers often offer promotions on merchandise that exceeds this percentage. Most of these promotions ensure a decent margin while increasing customer traffic. In the end, the retailer makes more money because of increase volume. Wal-Mart does this every day. They may have lower margin on their products but more than make up for it in volume. The problem with this kind of promotion is that the retailer trains their customer to expect this discount. Rather than a temporary price break, this becomes the new price ceiling. The only way to provide this price every day is to cut costs by cutting wages or jobs.
The employee pricing program when it started seemed to me to be a questionable strategy: a desperate move. I believe it was the same day or shortly after that GM announced the program, that they had another big layoff of executives and line workers. Do employee discounts being distributed to everyone now become a sign of a company in trouble?