Merry Markdowns
By George Anderson
Retailers are having visions other than dancing sugar plum fairies in their heads going into this holiday season. Higher household heating bills are on the way to consumers and discounting promises to be fierce, with the likes of Wal-Mart temporarily rolling back prices to make the competition’s head spin.
Wal-Mart will not be alone, say experts, as this holiday season will see some of the most aggressive price cutting in recent memory.
In fact, as Candace Corlett of WSL Stratregic Retail pointed out to the Denver Post, consumers needn’t even wait for Black Friday to begin saving. “We’re already seeing an explosion of very competitive pricing,” she said.
Wal-Mart has publicly expressed confidence heading into the holiday season that its price slashing ways will enable it to enjoy a merry Christmas, but others, including Target, have warned that the company and its shareholders may not get everything they wished for out of this holiday.
While the season may not turn out to be a spectacular success, industry groups have expressed confidence that sales for the Thanksgiving to New Year’s period will be an improvement over last year. The National Retail Federation (NRF) is looking for a five percent increase compared to last year, while the International Council of Shopping Centers (ICSC) predicts sales will improve in the three to 3.5 percent range.
Aubie Goldenberg, a partner in Ernst & Young’s retail group, said the nightmare scenario for retailers is consumers may decide that they cannot spend as much as they perhaps originally planned when heating bills arrive in the mail.
Moderator’s Comment: When all is said and done, will we find that consumers behaved differently (in terms of when they shopped) this year than in past
holiday sales periods? What effect will the early holiday advertising of retailers, such as Wal-Mart, Sears, etc., have on consumer shopping behavior? –
George Anderson – Moderator
An interesting factoid from the National Retail Federation this morning —
According to the Shop.org/BizRate Research 2005 eHoliday Mood Study, 77 percent of online retailers said that their sales increased substantially last year on the Monday after Thanksgiving, a trend that is driving serious online discounts and promotions on Cyber Monday this year. According to a recent Shop.org survey, conducted by BIGresearch, more than one third of consumers (37%), or 51.7 million people, said they will use Internet access at work to browse or buy gifts online this holiday season. The survey found that more than half of young adults 18-24 (51%) and nearly half of those 25-34 (49%) will be shopping online during work hours. The survey also found that men (42%) are more likely than women (32%) to shop at the office.
My conversations with online retailers and consumers confirm this trend.
The early holiday circulars won’t change shopping behavior all that much. People will still be lining up in front of Wal-Mart and Toys R Us at 5 AM this Friday.
Biggest trend: gift cards acquired pre-Christmas will lift post-Christmas sales through January. Under accounting rules, retailers can’t report gift cards as sales achieved until after they’re redeemed, or as the service charges accumulate. Gift cards are a help to cash flow, and will help retailers clear Christmas leftovers. Second biggest trend: “gift shifting”, as noted several days ago in RetailWire. People will be giving medical care, vacations, day spas and recreation, cooking lessons, tuition, services (prepaid cell phone time, satellite and cable TV) and charitable donations made in loved one’s names. Third biggest trend: internet sales will continue to grow nicely, although at a slower rate of increase.
Online sales will continue to grow as more and more consumers get comfortable with the security and convenience (not to mention the extra sleep!)
The real question is whether even deeper price cuts will generate more purchases or just give consumers bargains on the items they were going to buy anyway. An extra 3-5% discount may not be enough to convince shoppers to buy more items and deliver the projected sales dollars increase. My sense of this season is much more conservative than optimistic retailers want to believe.
Extant of life changing events, shifts in societal group patterns such as shopping behavior tend to happen incrementally. The “explosion” of internet shopping did not happen as predicted, although the sheer size and number of transactions expected for this holiday are enormous. The point here is that marginal changes in consumer behavior can be expected with changes in merchandising and promotion.
However, changing a societal expectation is not a one year endeavor. Will there be early shopping? Sure. The bargain hunters, time strapped and early completers are likely to respond to aggressive pre-holiday promotions. But then again, they are more likely to in the first place.
Retail is about market share. Every player is seeking methods of capturing someone else’s customer, or a large piece of their customer’s purse. The only thing one can definitively say about earlier and earlier price discounting is that it will have a negative impact on overall gross margin. If you are a retailer who planned for these events, bought into them, and have cost support for the expense, you are going to come out ahead of the player who didn’t plan, but had to react.
It looks like Christmas has started a lot earlier than in the past. The stores I’ve visited in the past two weekends have been packed with Christmas shoppers.
Holiday shopping is about price, price and price. Shoppers have gotten used to Black Friday promotions, 24 hour markdowns, last minute buys and day after Christmas specials. The strength of the Internet, combined with increased competition makes for a very informed consumer combined with a retailer who knows that they must offer competitive pricing to attract even their most loyal customers. Pricing during the holidays is not only about being competitive, but about meeting expectations of a well-informed consumer. The losers here are the Hi-Lo discounters like Target, while the EDLP players like Wal-Mart are clear winners. Since the vendor must support the same price opportunities at both types of channels, it is the Hi-Lo marketers who must determine the best way to promote and gain (or at least sustain) their customer base. This will probably mean coal for Target, and treats for Wal-Mart.
While analysts and pundits are rightly concerned about total expenditures this season as a result of high energy costs, I believe the focus should also be on what will be purchased. With concerns about prices, jobs, and the approach of winter, consumers are likely to spend their holiday money on warm clothes and other more basic items that would be required at some time during the year, regardless. Frivolous items are likely to take a hit this year, but relatively affluent consumers will still buy luxury goods.
The overriding factor here will be price as many others have stated. Consumers today are so well informed and educated about the price of products that many will research various retailers on the Internet and then buy from the cheapest, reliable source found. Others will do it the “old fashioned way” and compare the sales circulars. But in the end, price will be king, especially given the energy costs this season.
I must apologize, but I’m distracted (and tickled to death – Kansans actually say that) about the various Black Friday websites out there that are posting post-Thanksgiving ads from major retailers (including WM) in a pre-pre-pre Thanksgiving way. Very “pre.” Sometimes several weeks “pre.” This is hilarious. Retailers being “outed” by their printers or other rapscallions. Full disclosure: Back in the 70s I used to bribe a typesetter at the local newspaper to give me the competitions’ Thanksgiving turkey prices. One hundred bucks to learn the difference between 8¢ and 9¢ per pound. Today, when the retail stakes are much higher, insiders are giving up the information for free. Perhaps my $100 was a bad investment.
Bottom-but-intensifying-line, pricing is getting more transparent, much to the chagrin (Kansans say that, too) of the major retailers. Shoppers are more informed, year-round, and the recent reports and revelations from Google indicate that soon there will be nearly total pricing transparency. From the only company that has the power to map the human genome (and is doing it), Google will easily remove the fog from retail pricing.
So, will information change holiday shopping habits? Yes, of course. Internet shopping has already significantly skewed holiday purchasing along with gift cards and the predictable post-holiday sales. Connectivity has significantly impacted the entire flow of information. And, there’s nothing more information-based and high-stakes than shopping.