Retailers Plan to Limit Holiday Discounts
It doesn’t take any particular talent to give things away. But doing so makes it pretty difficult to turn a profit, so retailers are planning on playing it a bit closer to the vest this holiday season when it comes to discounting prices, according to a Wall Street Journal piece.
Merchants are trying a variety of approaches to avoid getting into a game of discount tit-for-tat this year.
Walmart has already made its Christmas pledge to offer consumers the lowest price for the season on the items they buy, regardless of when they make the purchase.
Kmart and Sears are offering Shop Your Way Rewards points that are equal to five percent back on all purchases made using their Sears credit card. The program runs through the end of the year at Kmart and until Jan. 28, 2012 for Sears.
"We know budgets are tight, so we want to reward our customers by offering them ways to stretch their dollar," said Dave Friedman, SVP and president, marketing at Sears Holdings.
According to the National Retail Federation, the largest percentage of consumers (66 percent) plan to shop in discount stores for the holidays, followed by department stores (57 percent), grocery (49 percent), online (47 percent), clothing (35 percent), electronics (32 percent), drug (21 percent) and catalog (14 percent).
"In 2009 it was all about personal and practical and last year consumers wanted to treat their loved ones to something special — this year, it’s a little bit of both," said Pam Goodfellow, consumer insights director, BIGresearch, in a press release. "Limited budgets and a desire to make the most out of gift-giving will drive consumers to shop at a variety of retailers while also thinking outside the box for great gift ideas."
While budgets are undoubtedly tight, consumers have demonstrated a resilience when it comes to retail purchases.
John Reese, founder of the investment firm Validea, wrote on the NASDAQ site, "Sales increased again by an impressive 1.1 percent in September, according to the newest Commerce Department data, and are now 19 percent higher than their recessionary low, and 4.5 percent higher than their pre-recessionary high."
- Don’t Expect Merrier Discounts – The Wall Street Journal
- Walmart Guarantees Lowest Prices for Christmas – RetailWire
- Sears and Kmart Offer Five Times Rewards Points – Sears Holdings/PRNewswire
- Is It Time To Bet On The US Consumer? – NASDAQ
- Eager to Strike a Deal While It’s Hot, Holiday Shoppers Plan Plenty of Self-Gifting This Holiday Season – National Retail Federation
Discussion Questions
Discussion Questions: Will discounting activity be higher or lower this year than it has in recent years? Do recent positive retail sales numbers make you more or less positive about the upcoming holiday sales season?
While I am as interested in a bargain as any shopper, I’d like it better if retailers didn’t knock prices down just to get traffic, since the numbers are showing the traffic is already a given. Shoppers are so savvy today, it’s hard to forecast if a discount on any given item is really the incentive to buy it, particularly in the gifting season.
We plan to book travel for holiday gifts this year, so I am watching the travel deals with all due diligence. We can do without more “stuff” and instead are choosing to get our family together in February and enjoy some time together in better weather.
I don’t expect discounting to be sharper this year than in years past, especially if merchants have managed their inventories conservatively. However, they need to be careful that the “price creep” driven by higher commodities prices doesn’t choke off demand. And a lot of the market-share battle is being fought on fronts like free shipping (for web-based or multichannel retailers) and loyalty discounts (like the Target REDcard). By mid-December we will know whether “holding the line” on discounting was a viable strategy or not.
This all sounds perfectly rational but, as I note in my whitepaper on 6 Gloom and Doom stories you’ll hear.
We’re bound to hear this: After the Black Friday weekend, headlines will announce that there were not enough shoppers in the stores, that Black Friday sales were disappointing, signaling trouble for the holiday season.
And this: During the first week of December, headlines will announce that retailers are nervous while shoppers are waiting on the sidelines for more bargains to appear.
I’d love to think it will change but these are a constant over the past 11 years. The smart retailers will focus on the “wants” this holiday which, like a Tiffany diamond, don’t come with a Groupon.
I am very upbeat on this holiday season. The mood of the consumer is, at least, stabilizing albeit cautious.
While the amount spent will differ for different demographics, the desire will be the same — show me something worth buying. Value will be the driver this holiday season, whether it’s from discounters or high-end retailers.
I do fear for the mid-tier retailer, where mediocrity lives and giving the customer a reason to buy seems to elude them.
This is an interesting claim, which will last until the first retailer with sales below plan breaks price. Oh, that’s right, Macy’s has already announced that they will open at Midnight for Black Friday.
Call me a Grinch, but with the economy where it is, unemployment where it is, and consumer confidence hitting new lows, it seems unlikely that this holiday will be any less promotional than those in the past few years.
For two fundamental reasons we expect retailers to perpetuate the level of discounting, in spite of what is more profitable (i.e., less discounting!):
1) There is still a lot of economic uncertainty – which is not waning at all – and could in fact be worse over the next few weeks. It’s unfortunately not likely to be mitigated by congress and the so-called Super Committee.
2) Retailers are comping over several years of highly promotional holiday periods. They are going to struggle for sales growth and of course are in the habit of sales, markdowns and Groupons to be “successful.”
All you have to do is look at how price-focused everyone is right now. Whether it’s Walmart and their price guarantee or Neiman-Marcus offering 40-50% off every day, there’s little reason to expect this kind of price-slashing-in-hope-of-stimulating-demand to abate.
Is it just me growing cynical — or do we read the same headlines every year?
October – “Retailers to limit discounts this year to protect profits”
November 15 – “Retailer X announces special hours and discounts for Black Friday”
November 21 – “Retailer Y announces super hot deals to break on Gray Thursday”
December 1 – “Retailers report consumers respond well to super hot discounts on Black Friday — setting record sales”
December 10 – “Retailers announce limited holiday discounting to protect margin”
December 11 – “Retailer Z breaks hottest prices of the season”
I’d go through New Year’s close outs — but you’re getting bored and I’m having a premature New Year’s Day hangover!
It will be hard to break the record of discounts given in the last couple of years. It looks like discounts are here to stay for a long time.
It is hard to break bad habits.
I expect discount activity to mirror past years. Retailers have trained consumers to wait for larger and larger discounts. Daily deal sites have trained consumers not to pay full price for anything or to substitute products/services for those on sale. Walmart has set the tone for the season with their low price guarantee. With so many discount abounding throughout the year, why shouldn’t consumers hold out for the lowest price this holiday season?
I think this year retailers are going to have to be crazy aggressive to get bigger baskets. The consumer psychology isn’t there this year and it’s going to be up to the merchant to change the buying behavior. Customers will be looking for discounting and bundling this season.
I think an alternative to discounting is providing better context to the gift purchasing process using rich content from interactive displays and mobile devices.
The Apple Store and Brookstone is a good example of a holiday retailing success scenario where these retailers provide rich interactive content and hands on interaction with their products and do not discount as a strategy.
Given the economy, I expect that discounting will be as bad or worse than last year. It’s far easier to proclaim less discounting than it is to achieve it with sluggish sales and bulging inventories. And it doesn’t take too many other retailers lowering their prices to set off a discount war. Let’s revisit this in mid-December and see who’s right.
Wow…we could all write a book on this one couldn’t we? Where to start? Ok, first Walmart offering a price guarantee is nothing new in retail. They are just putting more ad impressions behind it — kudos to them. Other leading retailers have offered price guarantees for years. If you need a list, contact me and I will share it. And, these same retailers have advertised/fulfilled against their guarantees as well.
Second, I’m actually feeling like this season will be half full vs. half empty. Call me an optimist, but retailers are managing their buying and corresponding depth of inventory “smarter” going into the season thus reducing the frequency of deep discounts (50-70% off) “early” in the season. They will leverage (smart move my friends at Sears Holdings/Sears Financial 5% in SYWR points) their rewards programs and deep affinity with members to provide a competitive blunt to everyday discounts through preferred tender use (Target 5% off everyday with house card). Hmmm…same percent…what do you know?
Lastly, pent up demand. While unemployment is 9% and real unemployment/under-employment at 20% plus or worse for certain demographics, people still need to buy gifts and necessities to make the Holiday special. Post Christmas Day/Clearance timeframe, the huge discounts and promotional messages will absolutely come into play to secure return traffic, get gift cards loaded up with return item value and create incremental visits into Jan/Feb 2012.
Retailers will talk the bold talk about profit and holding the line until it becomes panic time — that time when they realize the sales numbers are not where they need to be to satisfy stockholders and save their jobs. Then we will see the discounts start. This will justify the sales projections. And everyone will be happy from consumers to stockholders.
I think the discounts will be similar to last year. It is true that we are carrying smaller inventories which should help create a sense of urgency, but we have spent the past couple years conditioning consumers.
Most customers will only buy when the product is on sale, because if they wait 3 days to one week, it will usually be on promotion. Each year I hear corporate HQ tell us we will have fewer sales, but I have yet to see it.
I thought it might just be me — until I read the other comments here — but I didn’t see any evidence in the story that “Retailers Plan to Limit Holiday Discounts” and even if they were to make the claim, the proof is in the “8000 points for using our card, Wednesday between 5-9” pudding.
I sometimes wonder if these types of limited-holiday-discount stories — which I recall seeing last year also — are mere marketing ploys aimed at getting shoppers to part with their dollars earlier, rather than waiting for the probable sale.
Regardless, merchants may be able to hold the line on discounting for a few weeks, but we’ll still see plenty of sales/discounts around Black Friday/Cyber Monday and definitely in the days leading up to Christmas as well as the weeks after. The holiday shopping season is simply too important to too many retailers to simply sit back and hope that consumers riddled with economic anxiety shop the store without some type of incentive.
Is this February 2nd? Or, is it just “Groundhog Day”?
Same claim — different year.
All trends indicate otherwise.
Positive sales in September do not a holiday season make.
I’m not a pessimist. However, reality is that there is way too much uncertainty to be certain of anything.
Are promotions planned or a panic/response to conditions in market? The plans are in place and certainly can be adjusted — quickly in response to market conditions. I think we are selling retail senior management short. They absolutely consider the impact on their bottom line and shareholder satisfaction before authorizing deep discounts, or discounts not previously planned. If certain goods aren’t moving, then push the plan up in time or leverage rewards currency to create a highlighted bonus that reduces the internal markdown rate — buy on bonus without dropping price.
The question was higher/lower this year than recent years? Answer – same as recent years for all the right reasons: tighter inventory management, greater control of data to leverage offers smarter based on who to promote to selectively, thus optimizing margins and wanting to hold the line on deep discounts deeper into the season thus improving profit on cost of goods sold.
I don’t know if there is any kind of trend afoot here, but once retailers shift their perspective to realize that “discounting” is just a distorted way to describe paying customers to buy, and if they are forced to use their own money to pay the customer to buy, rather than extorting it from their suppliers, you’ll get a more rational retail business model.
This may seem like just words, but Sam Walton revolutionized retailing by making a lot of other retailers take seriously Every Day Low Pricing, which was driven by Sam’s message to suppliers: Hell no, I will NOT pay you one penny more for this merchandise than it is worth, FOB. And, by the way, I know exactly what that is. Here is what you are going to get paid. In return, I won’t expect you to give me any of your profits back.
This was fundamental to Sam’s understanding that the customers in the store were HIS customers, not his suppliers’ customers. He would make his money by serving them well, and make a profit from margin, not by allowing the supplier to make excessive margins and then demand some of that back in fees: slotting, promo, trade or what have you. Every dollar that Walmart takes in that does NOT come directly from their own margins is bastardizing their business model, and getting their eye off the ball. The siren song of the lazy casino is at the root of a lot of their problems.
Sam’s original plan is known as rational retailing, and the “Grocery Revolution,” written about by Kahn and McAlister back in the ’90s, is far from over.
Bottom line, regardless of the current stock market activity, we still have a very fragile global economy, and it is no healthier here in the US. Huge discounts will come on Black Friday, to be sure, because shoppers today are more value conscious than ever. No retailer is willing to take the revenue risk by losing business to the deeper-discounted competition.
Doesn’t matter! Amazon sets the price bar and if anyone is a price shopper, that is where they are going. If discounts and promotions aren’t forthcoming from manufacturers then retailers won’t have anything to pass on. However, the economic situation is such that manufacturers can’t afford to go without discounting unless the plan to sell from inventory during 2012. I expect discounting will actually be a little deeper and broader than last year.