Retailers to Reign In Holiday Discounts
A combination of already lowered prices, tighter
inventories and a greater focus on store and exclusive brands will enable
retailers to offer low prices without sacrificing profitability, according to analysts.
“There
won’t be the markdowns of last year,” Cory Lipoff, executive vice president
at Hilco Merchant Resources, told the Chicago Tribune. “If
you look closely, you’ll see retailers are trying to convey value without
discounting.”
While many retailers are looking to get out
front and project a price image for the holiday, that does not mean they
are getting ready to give away the store.
In a letter to investors, Credit
Suisse analyst Michael Exstein wrote, “There remains a big difference between
aggressive and irrational.”
Mr. Extstein noted
that Wal-Mart has been making a public relations push around its low prices
for the holidays but, “We do not expect any irrational behavior from Wal-Mart.
The company is far more disciplined than that.”
Discussion
Questions: Are you looking for more or less discounting this holiday
season versus last year? What element (store brand focus, tighter inventories,
etc.) do you think will be most critical as retailers try to maintain
margin integrity during the holiday season?
Retailers have relied on discounts like a crack addict looking for a fix. Pundits are saying how all that shoppers will look for this holiday are discounts. Walmart just announced their 100 toys for $10.
Less discounting makes good press but look to retailers return to the well because CMOs say, “I don’t like it but it works.”
Although there are a few signs of economic recovery in the US, from a consumer perspective I believe they are looking for at least the same level of discounts as last year. Too many people are still out of work, including those whose government-funded support has already run out. Those people seem to fall off the jobless statistics. Things are still very tough out there.
Retailers need to make swift and decisive discounts, while managing inventories to run very thin at store level. Two things about that statement, however; 1) That should be the rule every year, regardless of the economy, and 2) Most category purchases have already been executed, so it may be too late to revise inventories. Nevertheless, keep tabs on store inventories daily. Hold conference calls by store district to balance product levels on both top sellers and items that are not selling fast enough, either. Of course, you can utilize technology to do this, as many companies do, but I see very basic mistakes happening at store level due to those technologies not being utilized.
Holiday sales and merchandising is an endless game of chicken between retailers and consumers when it comes to price, each waiting for the other to blink first. Retailers created the continuous discounting as holidays get closer. How do you break consumers of that habit–especially in this economic environment?
I disagree that there will be fewer markdowns this year. In fact, most of my network has suggested that they want empty backrooms and distribution centers this January. I think you will see aggressive pricing ramping up to the big day. Especially in electronics and durables. The fact is that consumer spending is still down and will probably be soft this season.
With inventories lower, retailers will focus on driving traffic using limited item counts on the most popular items. Once in the store, retailers expect shoppers to add items to their basket. As I have stated in past comments, consumers are looking for a better retail experience now that they have stopped the crazed, irrational spending behavior. Consumers will be buying less this year but they will focus on quality and shopping experience.
There will be discounts, thanks to pressure from Walmart, but the discounts will be less than last year.
I’m not sure why we have to write about this every year. I guess it is an industry requirement of some sort.
This year will be a “completely different” version of the same old scenario. Retailers will vow not to discount as heavily as last year. Everyone will watch Walmart like racers watch the front runner to determine the pace. And everyone will finish in just about the same positions as they did last year. And the year before that.
Consumers will do what they have been taught to do. Wait. The pattern of their purchasing will not be moved more than 1% in any given direction on any given day. Black Friday will still be Black Friday–not because we call it that–but because the whole world doesn’t have to work (except retailers) on the day after Thanksgiving.
Retailers will respond to consumers unwillingness to bite on any of their attempts to alter those shopping patterns by assessing them as ineffective and resorting to exactly what the consumer expects. Discounts.
This is worse than watching the death dance of the Komodo dragon.
It’d be pretty tough to beat last year’s panic-driven inventory reductions as holiday merchandise hit an unwilling consumer full force. I saw several retailers sporting huge “75% Off!” signage at store front throughout November, December and January of last year. So, I doubt it’ll come to that again.
I would hope that retailers have got their inventories together and that all the “sales” are planned purchases that will give them a little same-store sales increase from which to gloat. Here’s to the new optimism!
Gift card sales are forecast to increase. Cards are popular because they buy more once the sales start. The modern consumer is patient enough to wait out the retailer, knowing that she is the wind beneath his sales.
The question really is whether customers will bite without deep discounts. Retailers are going to do just about anything to hold the line on prices, including inventory levels that are much tighter than last year.
It’s likely to be a game of chicken to see who will break first. I don’t see the consumer feeling particularly flush. I think they’re most likely to wait retailers out, who’ll then be forced into dropping prices to move goods out.
Either way, what the customer needs is value. For children’s toys, there are many that cost little yet have value. It is the right combination of cost and value.
Not sure if the headline for this topic was meant to be “Reign In” (as in rule like a monarch) or “Rein In” (as in restrict or reduce). Perhaps both. But I believe that suppliers – not retailers – will play the largest role in holiday discounts this year. Suppliers/vendors need to lubricate their distribution channels so they can do what they do best – get their plants running to make more stuff. They’ll also get concessions from their suppliers of raw materials. This will be the most important engine driving holiday discounts.
Consumers have already started to shop for Christmas. They are taking advantage of the continuing off-price promotions now and the availability of items, anticipating retailers will try to reign in the discounts they offer. It has been reported that Kmart’s layaway program has been successful so far for these reasons.
Retailers may enter the holiday season reducing off-price marketing but will find it extremely difficult to continue to do so throughout the season.