December 23, 2008
Retail Touchpoints: Mid-Season Report Card For the Holiday Season Shows Missed Opportunities
By Debbie Hauss
Through a special arrangement, presented here for discussion is an excerpt
of a current article from the Retail TouchPoints website.
Consumers did flock to
the stores on Black Friday 2008, but mostly to deep discounters and at
those stores they were looking for unusually large markdowns. Those out
shopping are looking for 70 percent off and higher – and in many
cases the retailers responded…but at what cost?
“It is the year
of the deal,” says Brad Wolansky, vice president of global e-commerce
for The Orvis Company. “Even merchants who traditionally aren’t promotional
(such as Orvis) must pay to play this year. Serving up the ‘same old stuff’
doesn’t work, particularly on the web where customers can see the difference.”
But industry experts
have mixed opinions on the subject: “Deep discounts don’t boost your
brand, they just destroy your margin,” says Nikki Baird from RSR Research.
Greg Buzek, president
of IHL Services, has a different take: “Retailers that are not willing
to heavily discount during this season are going to see dramatic drops
in same store sales. Abercrombie discounted less than others and saw their
overall sales for November drop 28 percent. Those that discounted might
not have increased sales, but they were able to weather the storm a bit
better.”
Janet Sherlock, research
director at AMR Research, noted that it has also been challenging for retailers
to compete against the prices of competitors filing for bankruptcy and
running GOB sales.
“While top-level
revenue figures were adequate during the 2008 Thanksgiving weekend, profit
contribution was likely poor for many retailers,” said Ms. Sherlock.
“Unfortunately, we then train the consumer to expect excessively low
prices. Next year, there will likely be fewer retailers.”
Whether or not deep discounting
is helping retailers this year or any year for that matter, retailers still
must focus on garnering sales from their best customers not only during
the holidays but all year long and from one year to the next. “Retailers
really do very little to make their loyalty shoppers feel special,” notes
Ms. Baird. “How about a special gold member lounge complete with foot
massage and hot chocolate? Or loyalty members only from 4-6am and 9-10pm?”
Mr. Buzek agrees. “I
think most retailers are missing the boat on focusing on low margin sales
only to drive traffic for (Black Friday) rather than building a longer
term relationship that allows for outreach and ‘special days’ throughout
the year. Retailers like Borders and Best Buy get it with their programs.
I’m not sure of too many others that are taking advantage.”
Discussion Questions:
Have retailers been too promotional this holiday season? Will the price
slashing only condition consumers to expect discounts in years ahead?
What opportunities are retailers missing amid the discounting?
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Most retailers have me-too assortments so why shouldn’t they have me-too promotions? To stand tall, to be different, to hold the line on pricing, you need to have a special assortment and/or special positioning. Otherwise folks just laugh. Victoria’s Secret, Coach, Tiffany, Ed Hardy, The Buckle, and Abercrombie can get away with price independence. Mr. Average Typical Clothing Store selling stuff that looks like everyone else’s stuff, with no eroticism or any other standout positioning, can’t resist competitive promotions.
If your local convenience store hired 21 year old knockouts wearing string bikinis as cashiers, traffic would boom. But if they hired the same folks they always hire and simply held the price of gasoline to the same price from 10 weeks ago (when it was way a lot more), who’d come to fill up?
Yes, consumers are being conditioned by the deep discounting this holiday season. The current price discounting is consistent with the adage, “What gets rewarded gets done.” The challenge for all marketers (manufacturers and retailers) is to find a point of differentiation in an economically challenged market.
If consumers are faced with two equal offerings, e.g., retailer A and retailer B, and retailer A’s prices are lower, than A will get the business every time. The goal of marketing is to never give consumers equal choices. Instead, give them a reason to prefer your store over the competition. Once we give away all of the margin in price discounts, what’s next? The answer to this question should be the basis of differentiation sooner rather than later.
Many stores in the business of running Sunday sale circulars (JCPenney, Kohl’s, Target and others) didn’t just discover deep discounts in 2008. In fact, these stores’ business models are built on being highly promotional, so a side-by-side comparison of their 2008 vs. 2007 pricing won’t show a huge difference. If part of the brand equity is “value,” then running sales doesn’t cheapen the brand.
It’s possible to drive margins in today’s environment by managing inventory levels and category mix appropriately; it becomes more challenging to drive earnings (and cover fixed costs) if you can’t move the dial on top-line sales.
The more surprising development this year has been the amount and depth of discounting among apparel specialty stores who did not build their business on store-wide sales, “take an extra 25% off anything you buy,” and so on. These stores will doubtless take a hit on merchandise margins as well as customers’ future perception of their regular-price values. Abercrombie has stood alone in resisting discounts, although at a steep cost to its sales in a season where consumers are looking for a deal.
Consumers for the most part are at least informed by the news adequately enough to fully realize that we’re in a recession and therefore the deals and the timing of promotions being offered in this particular year are “exceptional.”
70% is the new 40% this year. I don’t get how “deep discounting to lure shoppers” is better than Abercrombie’s refusal to jump in with the other dirt scratchers and losing 28%. In the end, it is profits, not bodies. And the deal of the day emails from Macy’s and Restoration Hardware in particular have taught us that no sale has a deadline anymore. The missed opportunities have to be the lack of selling the merch, particularly in the boutique stores for holiday 2008.
There has been so much publicity about the amount and size of the deals that anyone that paid a “normal price” for anything must feel cheated. We made a purchase at an upscale kitchen retailer this week and received a 30% discount after requesting a better deal from the manager on an item that normally wouldn’t be discounted. We were pleased at the time, but if you believe the media’s headlines, we should have been able to get a better deal.
This is a crazy and desperate time for retailers and they have my sympathy. I certainly don’t want to see many of them not be able to make it in these difficult economic times. But it looks like only the best managed will survive. Any retailer that doesn’t have a strong business strategy and identity is in very big trouble. A strong balance sheet is another must have. Unfortunately, it looks like many businesses are lacking in more than one of these categories.
First, this holiday season is truly unusual. The country and the world are experiencing the worst economic downturn since the depression. Most retailers placed orders for merchandise long before the depth the economic downturn was recognized and now they need use deep discounts to get rid the excessive inventory and make room for first quarter merchandise. Thus, one should be cautious about drawing conclusions from this year.
Second, the two pricing models used by retailers, EDLP and HI-LO, have coexisted for a long period of time. Each of models has its advantages and disadvantages. One model is not clearly superior to the other. Retailers that use a HI-Lo (heavy promotions) like Macy’s, Kohl’s, and JCPenney, have been able to maintain their brand image and be promotional. So circumstances are forcing retailers to be more promotional this holiday season, but the heavy promotions this season do not indicate a long-term trend or problem.
Will the price slashing only condition consumers to expect discounts in years ahead? Who is kidding who? Retailers have been conditioning shoppers to expect more and more discounting each Holiday Season for the last ten years or more. That is the reason the last days and weekends before Christmas have grown as a percent of the seasons sales.
For years the retailers have been leaving more and more money on the table. This year is no exception. Consider the awful events at Walmart on Black Friday. Ignoring the tragedy for the moment, how many people were on line to get a limited number of TVs? Multiples more than were in stock. Could Walmart have made more money charging $50 more and only having 50 people in line?
As I wrote several weeks ago, I am in the Abercrombie camp. Even with a 30% drop in revenues, they are likely have a higher ROI than the any competitor is discounting 70% or more.
The above example assumes that Abercrombie is able to clear their inventory and make way for the next season. That would mean that they carried fewer inventories into this season. If so, they will record a sterling performance. However, inventory management is where many retailers fail. Each year they invest more in inventory only to cut average margins more to move it. Retailers have to start leaving less money on the table. The objective is not “sell at any cost.”
Bob Phipps notes above that 70% is the new 40%. The big difference is that at 40%, the retailer still made money. At 70% every Friday turns from Black to Red.
Retailers have pulled out all the stops to capture customers’ business this season. What’s curious, though, is additional discounts while the customer is at the counter. As recently as last week, I approached the counter with $90 worth of merchandise, only to be rung up at $72. What in the world are the post-holiday sales going to look like?
I do think the devilish deep discounting across the board especially at specialty and boutique retailers this year may tend to cheapen or change the brands and the stores’ images, long term. I also believe consumers at all economic levels are likely being “trained” by this desperation marketing to be wary of paying full retail price in the future. This is not good. However, the 2008-09 selling season is like no other in memory. Every retailer has to do what it takes right now to get existing inventory out the door so they can pay the bills, pay the rent, and pay the employees.
When the economy (and the country) starts to emerge from its funk, there will be way fewer retail names and some interesting new ones created. That will be the perfect time for announcing new loyalty programs and perks and the time for energizing the old customer base or wooing a new one. Now is the perfect time for retail management and consultants to plan for that day amidst the current gloom and doom.
Yeah, I don’t think massages, hot cocoa, and high prices would have cut it the Christmas season. Today, there was an article in the SF Chronicle about young, debt-free SF professionals without families buying things because they have no other obligations, they still have plenty of money, and products are cheaper. But what was most interesting is that they felt guilty about spending, even though they could afford it.
I also expect there’s another segment (like my family) that also has no debt issues and can afford to buy, but has heightened anxiety about the future. And these are the GOOD segments in this economy, not those with foreclosures or job losses.
I’m not sure you can motivate a consumer out of guilt or anxiety based on service. I think for now it has to be price.
As a supermarket owner, we are used to discounting and have survived many years of having all the supercenters around us.
2008 has only made me become more focused on bringing in the right deals, at the right price, and still make a profit. There are plenty of regional suppliers looking for business and it is essential for me to establish a good working relationship with as many as I can. The national brand food companies only want to cater to the “big stores,” and we can not even get a fair price, so why cry about it? Instead, the regional wholesalers have done very well in my store, and have given me fantastic deals to not only compete, but smash the competition, providing I buy big.
I don’t like what has happened to my industry, but I’m making some great lemonade out of the lemons I’ve been dealt, and will continue to grow my business each year. Merry Christmas to all and God bless our troops!
Here in Canada, I see lots of 30-50% off. These prices are pretty good as Boxing Day isn’t that much better. Years and years ago, you’d have pre Xmas deals, but for the real deals, you wait for Boxing Day. Now, buy before Xmas and forgo the extra 10% you might get later on unless you are a real stickler for that ultimate deal.
As for 70% blowouts, I don’t see that helping any retailers, except to get rid of excess inventory if that is a main concern for them. At that discount, I don’t see much margin left.
I guess the game they are trying to play is to get them to their stores and be loyal afterwards when the deals are over. I doubt it. If people are flocking to the stores with the best deals now, why would they stick around when prices are normalized? It’s just training consumers to wait for deals even more. As soon as someone has a decent deal on a weekly flyer, they’ll just go to them.
Yes. Take a lesson from the fast food industry. The couponing became an addiction that has taken years to wean people from (if they have been weaned). Now it’s time to get more creative about the value and the brand in order to avoid the price comparison being the only criteria for shopping decisions.
Retailers continue to miss the boat on what the consumer wants: value, customer service and broad selection (one-stop shopping). This is spelled Wal-Mart and it is no wonder that they are the only retailer providing good numbers despite the recessionary economy. The implications are that the retailers who continue to do what they have been doing will fail and go out of business. We see the signs around us everywhere as these retailers cut labor (the worst thing to do since it has a direct impact on customer service), yet don’t really change the key 4P’s of their product mix (product, price promotion and place). These retailers will eventually drown in red ink as they cling to models that are not dynamic enough and do not reflect the needs of the ever changing customer.
Recessions are all about change and the retailers who have a flexible model that reflects the needs of the consumer will survive. Adapt or perish is the slogan for successful retailers, and it is led by customer service, low prices and one stop shopping!
Where does it all end? Retailers who choose to use price discounts to compel people to buy what they don’t need are clearly only compelling consumers to buy on discount what they DO already feel they need.
Not only will retailers order less, they will also be forced to increase prices in anticipation of lower volume. Even more stores will become marginal and will be closed. Suppliers will need to increase prices to deal with lower volume. Yes, retailer, wholesaler, and manufacturer will reduce overhead and labor, but they will need to increase prices to allow room to absorb increased cost of goods plus the high discounts everyone is telling them they must offer in order to get traffic.
The greatest concern should be deflation of demand for stuff people don’t need. Whether their own decision or evaporation of credit that finally makes excess unavailable the result is the same. The unraveling has begun, and the over-storing of America appears to be coming to a blunt end.
Only the sale of staples, better marketing of good products that fill true needs, and new product innovations can survive in this new era. Too many people just got way too caught up in the errant consumerism from the consumer to the retailers to the wholesalers and all the way back to the manufacturers. So who fooled whom? Was it the suppliers who made the products attractive to the consumer, or the consumer who bought what they only wanted and didn’t need? Does it matter?
Marketing the features and benefits of products so people understand and justify why they need them is the only way to move forward. Wasn’t it always?
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Most retailers have me-too assortments so why shouldn’t they have me-too promotions? To stand tall, to be different, to hold the line on pricing, you need to have a special assortment and/or special positioning. Otherwise folks just laugh. Victoria’s Secret, Coach, Tiffany, Ed Hardy, The Buckle, and Abercrombie can get away with price independence. Mr. Average Typical Clothing Store selling stuff that looks like everyone else’s stuff, with no eroticism or any other standout positioning, can’t resist competitive promotions.
If your local convenience store hired 21 year old knockouts wearing string bikinis as cashiers, traffic would boom. But if they hired the same folks they always hire and simply held the price of gasoline to the same price from 10 weeks ago (when it was way a lot more), who’d come to fill up?
Yes, consumers are being conditioned by the deep discounting this holiday season. The current price discounting is consistent with the adage, “What gets rewarded gets done.” The challenge for all marketers (manufacturers and retailers) is to find a point of differentiation in an economically challenged market.
If consumers are faced with two equal offerings, e.g., retailer A and retailer B, and retailer A’s prices are lower, than A will get the business every time. The goal of marketing is to never give consumers equal choices. Instead, give them a reason to prefer your store over the competition. Once we give away all of the margin in price discounts, what’s next? The answer to this question should be the basis of differentiation sooner rather than later.
Many stores in the business of running Sunday sale circulars (JCPenney, Kohl’s, Target and others) didn’t just discover deep discounts in 2008. In fact, these stores’ business models are built on being highly promotional, so a side-by-side comparison of their 2008 vs. 2007 pricing won’t show a huge difference. If part of the brand equity is “value,” then running sales doesn’t cheapen the brand.
It’s possible to drive margins in today’s environment by managing inventory levels and category mix appropriately; it becomes more challenging to drive earnings (and cover fixed costs) if you can’t move the dial on top-line sales.
The more surprising development this year has been the amount and depth of discounting among apparel specialty stores who did not build their business on store-wide sales, “take an extra 25% off anything you buy,” and so on. These stores will doubtless take a hit on merchandise margins as well as customers’ future perception of their regular-price values. Abercrombie has stood alone in resisting discounts, although at a steep cost to its sales in a season where consumers are looking for a deal.
Consumers for the most part are at least informed by the news adequately enough to fully realize that we’re in a recession and therefore the deals and the timing of promotions being offered in this particular year are “exceptional.”
70% is the new 40% this year. I don’t get how “deep discounting to lure shoppers” is better than Abercrombie’s refusal to jump in with the other dirt scratchers and losing 28%. In the end, it is profits, not bodies. And the deal of the day emails from Macy’s and Restoration Hardware in particular have taught us that no sale has a deadline anymore. The missed opportunities have to be the lack of selling the merch, particularly in the boutique stores for holiday 2008.
There has been so much publicity about the amount and size of the deals that anyone that paid a “normal price” for anything must feel cheated. We made a purchase at an upscale kitchen retailer this week and received a 30% discount after requesting a better deal from the manager on an item that normally wouldn’t be discounted. We were pleased at the time, but if you believe the media’s headlines, we should have been able to get a better deal.
This is a crazy and desperate time for retailers and they have my sympathy. I certainly don’t want to see many of them not be able to make it in these difficult economic times. But it looks like only the best managed will survive. Any retailer that doesn’t have a strong business strategy and identity is in very big trouble. A strong balance sheet is another must have. Unfortunately, it looks like many businesses are lacking in more than one of these categories.
First, this holiday season is truly unusual. The country and the world are experiencing the worst economic downturn since the depression. Most retailers placed orders for merchandise long before the depth the economic downturn was recognized and now they need use deep discounts to get rid the excessive inventory and make room for first quarter merchandise. Thus, one should be cautious about drawing conclusions from this year.
Second, the two pricing models used by retailers, EDLP and HI-LO, have coexisted for a long period of time. Each of models has its advantages and disadvantages. One model is not clearly superior to the other. Retailers that use a HI-Lo (heavy promotions) like Macy’s, Kohl’s, and JCPenney, have been able to maintain their brand image and be promotional. So circumstances are forcing retailers to be more promotional this holiday season, but the heavy promotions this season do not indicate a long-term trend or problem.
Will the price slashing only condition consumers to expect discounts in years ahead? Who is kidding who? Retailers have been conditioning shoppers to expect more and more discounting each Holiday Season for the last ten years or more. That is the reason the last days and weekends before Christmas have grown as a percent of the seasons sales.
For years the retailers have been leaving more and more money on the table. This year is no exception. Consider the awful events at Walmart on Black Friday. Ignoring the tragedy for the moment, how many people were on line to get a limited number of TVs? Multiples more than were in stock. Could Walmart have made more money charging $50 more and only having 50 people in line?
As I wrote several weeks ago, I am in the Abercrombie camp. Even with a 30% drop in revenues, they are likely have a higher ROI than the any competitor is discounting 70% or more.
The above example assumes that Abercrombie is able to clear their inventory and make way for the next season. That would mean that they carried fewer inventories into this season. If so, they will record a sterling performance. However, inventory management is where many retailers fail. Each year they invest more in inventory only to cut average margins more to move it. Retailers have to start leaving less money on the table. The objective is not “sell at any cost.”
Bob Phipps notes above that 70% is the new 40%. The big difference is that at 40%, the retailer still made money. At 70% every Friday turns from Black to Red.
Retailers have pulled out all the stops to capture customers’ business this season. What’s curious, though, is additional discounts while the customer is at the counter. As recently as last week, I approached the counter with $90 worth of merchandise, only to be rung up at $72. What in the world are the post-holiday sales going to look like?
I do think the devilish deep discounting across the board especially at specialty and boutique retailers this year may tend to cheapen or change the brands and the stores’ images, long term. I also believe consumers at all economic levels are likely being “trained” by this desperation marketing to be wary of paying full retail price in the future. This is not good. However, the 2008-09 selling season is like no other in memory. Every retailer has to do what it takes right now to get existing inventory out the door so they can pay the bills, pay the rent, and pay the employees.
When the economy (and the country) starts to emerge from its funk, there will be way fewer retail names and some interesting new ones created. That will be the perfect time for announcing new loyalty programs and perks and the time for energizing the old customer base or wooing a new one. Now is the perfect time for retail management and consultants to plan for that day amidst the current gloom and doom.
Yeah, I don’t think massages, hot cocoa, and high prices would have cut it the Christmas season. Today, there was an article in the SF Chronicle about young, debt-free SF professionals without families buying things because they have no other obligations, they still have plenty of money, and products are cheaper. But what was most interesting is that they felt guilty about spending, even though they could afford it.
I also expect there’s another segment (like my family) that also has no debt issues and can afford to buy, but has heightened anxiety about the future. And these are the GOOD segments in this economy, not those with foreclosures or job losses.
I’m not sure you can motivate a consumer out of guilt or anxiety based on service. I think for now it has to be price.
As a supermarket owner, we are used to discounting and have survived many years of having all the supercenters around us.
2008 has only made me become more focused on bringing in the right deals, at the right price, and still make a profit. There are plenty of regional suppliers looking for business and it is essential for me to establish a good working relationship with as many as I can. The national brand food companies only want to cater to the “big stores,” and we can not even get a fair price, so why cry about it? Instead, the regional wholesalers have done very well in my store, and have given me fantastic deals to not only compete, but smash the competition, providing I buy big.
I don’t like what has happened to my industry, but I’m making some great lemonade out of the lemons I’ve been dealt, and will continue to grow my business each year. Merry Christmas to all and God bless our troops!
Here in Canada, I see lots of 30-50% off. These prices are pretty good as Boxing Day isn’t that much better. Years and years ago, you’d have pre Xmas deals, but for the real deals, you wait for Boxing Day. Now, buy before Xmas and forgo the extra 10% you might get later on unless you are a real stickler for that ultimate deal.
As for 70% blowouts, I don’t see that helping any retailers, except to get rid of excess inventory if that is a main concern for them. At that discount, I don’t see much margin left.
I guess the game they are trying to play is to get them to their stores and be loyal afterwards when the deals are over. I doubt it. If people are flocking to the stores with the best deals now, why would they stick around when prices are normalized? It’s just training consumers to wait for deals even more. As soon as someone has a decent deal on a weekly flyer, they’ll just go to them.
Yes. Take a lesson from the fast food industry. The couponing became an addiction that has taken years to wean people from (if they have been weaned). Now it’s time to get more creative about the value and the brand in order to avoid the price comparison being the only criteria for shopping decisions.
Retailers continue to miss the boat on what the consumer wants: value, customer service and broad selection (one-stop shopping). This is spelled Wal-Mart and it is no wonder that they are the only retailer providing good numbers despite the recessionary economy. The implications are that the retailers who continue to do what they have been doing will fail and go out of business. We see the signs around us everywhere as these retailers cut labor (the worst thing to do since it has a direct impact on customer service), yet don’t really change the key 4P’s of their product mix (product, price promotion and place). These retailers will eventually drown in red ink as they cling to models that are not dynamic enough and do not reflect the needs of the ever changing customer.
Recessions are all about change and the retailers who have a flexible model that reflects the needs of the consumer will survive. Adapt or perish is the slogan for successful retailers, and it is led by customer service, low prices and one stop shopping!
Where does it all end? Retailers who choose to use price discounts to compel people to buy what they don’t need are clearly only compelling consumers to buy on discount what they DO already feel they need.
Not only will retailers order less, they will also be forced to increase prices in anticipation of lower volume. Even more stores will become marginal and will be closed. Suppliers will need to increase prices to deal with lower volume. Yes, retailer, wholesaler, and manufacturer will reduce overhead and labor, but they will need to increase prices to allow room to absorb increased cost of goods plus the high discounts everyone is telling them they must offer in order to get traffic.
The greatest concern should be deflation of demand for stuff people don’t need. Whether their own decision or evaporation of credit that finally makes excess unavailable the result is the same. The unraveling has begun, and the over-storing of America appears to be coming to a blunt end.
Only the sale of staples, better marketing of good products that fill true needs, and new product innovations can survive in this new era. Too many people just got way too caught up in the errant consumerism from the consumer to the retailers to the wholesalers and all the way back to the manufacturers. So who fooled whom? Was it the suppliers who made the products attractive to the consumer, or the consumer who bought what they only wanted and didn’t need? Does it matter?
Marketing the features and benefits of products so people understand and justify why they need them is the only way to move forward. Wasn’t it always?