Post-Christmas Comes Early This Year
Retailers made a last ditch effort to salvage a lackluster final holiday week with "after Christmas" level pricing, but undoubtedly many shoppers have held out until after the holiday for even deeper discounts. For many consumers in recent seasons, belated Christmas gifting and gift cards have been part of the quest to land the lowest price imaginable. But with stores this year chopping upwards of 60 percent off list during the final days before Christmas, will post-Christmas clearance sales be as dramatic?
The research firm, Retail Metrics, came out on Tuesday morning with an overall projection of 2.8 percent growth for December revenue in stores open at least a year, up a bit from 2.6 percent in 2012. Retail Metrics president Ken Perkins said the final weekend before Christmas "did not generate the final crush of shoppers necessary to save the holiday season," according to NBC News.
On Tuesday, Amazon.com was already posting "after Christmas" deals of as much as 70 percent off apparel and 60 percent off some electronics, according to AP. And Old Navy was applying 75 percent-off discounts, saying its "after-holiday sale starts early."
The tendency to wait for last minute deals seems to say more about the American competitive spirit than the need to economize. No amount of discounting appears to be enough.
In a survey by America’s Research group, nearly a quarter of last-minute shoppers said they were holding out for 60 percent or 70 percent off discounts. "When you ask consumers why they didn’t get finished, the number one reason was they were waiting for bigger discounts," Britt Beemer, chairman and founder of the research firm, told NBC.
Consumers apparently see heavy discounting as an entitlement — just rewards for the efforts they put into shopping. "I just waited until this weekend to [pay] what I thought was fair," said Andrea Vollf, an interior designer from Schaumburg, Ill. in the NBC report. "Stores pretty much overprice everything to cover their overhead."
Clearly, deeper holiday discounting should join death and taxes on Ben Franklin’s list of life’s certainties.
"I’ve lived through a lot of holiday seasons and you can predict that 2014 will be more promotional than 2013 — if that’s possible," said J. Crew Chairman and CEO Mickey Drexler in a CNBC interview last week. "I think it’s a very long term, slow race to the bottom."
Mr. Drexler went on to advise retailers that the only way to break the cycle is to be more creative and inventive. On the day before Christmas, J. Crew was e-mailing offers of 30 percent off online and in-store goods. One could argue that, in this environment, J. Crew’s offers are daringly conservative.
Discussion Questions
Should retailers drop the bottom out of prices before Christmas rather than wait for post-holiday clearance sales? Are consumers hopelessly “trained” to hold out for last-minute or post-holiday pricing, or can the cycle be broken?
Retailers have done an unbelievably good job of training consumers to shop on price, and delay purchases waiting for even lower prices.
In the process, retailers seem to have acquired an addiction of only being able to move volume based on lowering prices. When selling almost at cost, it’s “hard to make it [profit] up on volume”!
The question for next holiday is which retailers will develop strategies to motivate consumers to buy on something other than “lowest prices of the season.”
Rule #1 of discount retail merchandising: “Your first reduction is your best.” Yes, shoppers are demanding more deep discounts before, during and after the holidays. CPG and retail brands need to leverage price and promotion optimization tools available to take the gut feel out of pricing and respond to anticipated demand signals.
Sales and discounting are an essential part of retailing, but I don’t agree with the part of the premise of this question which seems to be (paraphrased), should retailers admit inefficiency and lack of creativity prior to Christmas and give away all margin or should they wait until after Christmas?
Some retailers selling non-differentiated/commodity products or competing solely on price do have some hard decisions to make. Gift cards make this even more difficult. And retailers who annually use after-Christmas sales to move large amounts of overstocks, therein training their customers to anticipate large discounts have themselves to blame.
What should a good retailer who wants to make a profit do? All the basics we discuss: Know their customer, create a pleasant and, if possible, unique shopping experience, staff well, plan and order efficiently, promote like crazy utilizing mobile/digital channels, utilize markdown pricing technology to clear out merchandise challenges (small amounts, hopefully), and hope for cooperative weather.
As a former executive in the cruise industry, which has “trained” consumers to look for pricing deals, I am amused by the discussion among retailers about the consequences and implications of the sales and large discounts that have become the norm in the industry. At least the cruise industry has some rationale for discounting as it is marketing a perishable product with no residual value if not sold before the ship departs.
For as long as I can remember, retail promotion has focused on weekly special sale events. As retailers have implemented historically large mark ups so they can preserve profitable margins after giving discounts of 30% or more, they have indeed motivated consumers to avoid the faux pricing by waiting for sales. Consumers recognize unrealistic “normal” pricing when they see it.
The solutions to this “problem” in retailing seem obvious.
Retailers have backed themselves into a corner with deal pricing, not unlike the automobile industry some years ago. A number of factors have created this issue: the Great Recession; millions dropped from employment; decline in average household income; and Obamacare uncertainty. When the consumer has less money to spend, they become thriftier. Retailers can expect the same for the next few years. Only when a must-have item hits the market or real income increases will there be any chance for retailers to get out of this hole.
According to ShopperTrak, retail sales were down significantly last week and this holiday shopping season is still forecast to be the slowest growth since 2009, so not sure how dropping “the bottom out of prices before Christmas rather than wait for post-holiday clearance sales” would have helped.
I agree with Mickey Drexler that there is currently a race to the bottom and there will only be a handful of winners in that game, ones who’s operational costs are are lower than the others. The shifting of sales to online can help; Amazon should be able to drop its prices more than others as they don’t have the physical cost structure of a traditional retailer and they have other revenue streams like Amazon Web Services, Kindle, etc. Brick & mortar retailers don’t, but it’s not the only answer. Retailers need to reinvent the in-store shopping experience.
I think it may well be too late. With “Black Friday” pricing starting on the Fourth of July and post-Christmas sales going on until President’s Day, savvy consumers are behaving like they’ve been trained – and no surprise.
In everything but the most luxurious of luxury goods, consumers are hopelessly trained to hold out for sales, door busters and lowest possible pricing. I don’t see how this gets turned around and the cycle broken. It is the new normal and retailers have themselves to blame. The increased push of giving gift cards as gifts that the recipients use to buy more value merchandise on after Christmas sales is a lot of the “problem,” too.
Being able to comparison shop and see ads online has all but eliminated the possibility of accidentally over-paying, so almost everything gets bought on sale from black Friday onward.
Consumers have been trained well – wait and the discounts will come! What a crazy race to the bottom. The sales started earlier this year, and are continuing. How does the consumer know when the best price is being offered? Grabbing a good price too early may make the consumer frustrated if a better price comes along. From the retailers’ perspective, continuing to lower prices means you may be drawing people to make a purchase decision, but you may not be making a profit.
What a crazy cycle. It does not appear to be helpful to anyone, but the period of time the craziness occupies expands every year. Since no one wants to buck the trend, the process will continue.
American retail is a victim of a combination of lazy/unskilled retailers (with a few notable exceptions) and poor macro economics that has put America in a decades-long slow/no growth environment. Outside of luxury and unique concepts, the bulk of American retail is very similar with nothing to compete with other than price/promotions. With most Americans seeing their costs of living rising faster than their incomes, and little hope of change, it is no surprise that they will constantly chase lowest-possible pricing.
Yes. Many items are technology based, and this gives retailers the chance to not only increase sales, but also to clear their shelves for the new models. The same can be said for fashion based products, seasonal products, etc. Sell it now, rather than have to mark it down even more later….