Sources: Best Buy, J.Crew, Macy’s
Can retailers wean consumers off discounts this holiday season?
Retailers are expected to reduce the number of items they put on sale this holiday season, and the discounts that are offered will probably be much closer to everyday prices than they’ve been in the past. The likelihood of this proving true throughout the balance of 2021 has been made possible by a number of pandemic-related factors including supply chain disruptions, limited inventories and the reality that many retailers are still trying to claw back profits after they saw their sales and earnings take a hit in 2020.
The good news is that one forecast after another has this year’s Christmas building on last year’s 5.8 percent gain. Deloitte is expecting sales to be up seven to nine percent over 2020, with online growing in the 11 percent to 15 percent range.
A shortage of goods on store shelves has made it easier for retailers to limit the number of items they put on deal. Adobe Analytics found that out-of-stocks on goods in 18 categories sold online were up in August by 24 percent year-over-year.
“We’ve never seen it as high as this for the 10 years or so that we’ve done this report. It’s a record,” Taylor Schreiner, director with Adobe Digital Insights, told CNN.
A Wall Street Journal article yesterday pointed out that fewer and lower discounts will likely boost retail profit margins but also suggested that it could reduce overall spending by consumers in a year when product prices have steadily risen.
Michelle Keldgord, a 28-year-old blogger who lives in Redlands, CA, told the Journal, “I’m definitely going to buy less this year. Every time I go to the store, the prices are higher, which is cutting into the budget.”
Retailers have been mostly upbeat about their prospects for profitable selling during the holidays.
The Journal article cited statements made by CFO’s from Gap and Macy’s at an investor conference last month.
Adrian Mitchell, Macy’s CFO, said that “promotional levels have been lower than historical levels” for the chain.
Katrina O’Connell at Gap said, “We’re already quite pleased with the fact that we’ve been able to really pull back on discounting in all of our brands.”
- Deloitte: Holiday Retail Sales Expected to Increase 7-9% – Deloitte
- Holiday Spending Reflects Continued Consumer Demand – National Retail Federation
- Online shopping bummer: Out-of-stock products surged 172% from pre-pandemic levels – CNN
- Shoppers Find Discounts Are in Short Supply This Holiday Season – The Wall Street Journal
Discussion Questions
DISCUSSION QUESTIONS: Do you expect reduced discounting to hold throughout the holiday season? Will promotional reductions set the stage for retailers, in general, to dial back the level of discounting they’ve done in the past as they move forward?
Poll
Loading …BrainTrust
Cathy Hotka
Principal, Cathy Hotka & Associates
Ian Percy
President, The Ian Percy Corporation
Reduced discounting will hold over the holidays, if only because there is a shortage of product in some areas and retailers don’t need to discount to sell it through. That said, there will still be deals and offers because retailers are competing with each other and with other non-retail areas of spending, so they need to pull out some stops to retain and gain market share. Fortunately, the consumer is still in a reasonable place so the market can bear higher prices without too much of a fall in volumes. All of that adds up to an optimistic forecast for the season.
It’s simple — show how many you have in real time. Customers just want the product, not a deal. Deal with it.
Hi Bob … I’ve seen many a customer want BOTH!
“‘Tis the season” to limit deep discounts on holiday merchandise. If there ever was a year that consumers might expect to pay higher prices, this is the year. With heavily publicized supply chain issues, shoppers may feel fortunate to get what they want before products are out of stock. With potential inventory shortages on some items, it will be a common case of supply versus demand that drives pricing decisions.
Why discount scarce products? I don’t think this year will be a deep sale year. But this won’t be a trend either once demand/supply and delivery level off again.
The short answer is no. That would go against human nature.
This is supply and demand at its finest. Shoppers have been bombarded with news about shipping traffic jams and seen “SOLD OUT” notices enough to know that demand will outstrip supply for a while. There will be a blip in the supply with supply chain disruption and a COVID-19 behavioral shopping shift that will reduce discounting this holiday season. Just in time will be not so fine this season.
So it’s not a matter of weaning consumers off discounts, it’s a matter of finding a good way to say, hey, you’ll be lucky to even get this thing, so please don’t ask for a discount on it.
Dump discounts now while people are more preoccupied with the scarcity of goods. Having something in hand outweighs the desire to see if the price goes down. A “wait and see” strategy doesn’t seem like a smart one this holiday season.
Discounts will continue. The retailers do this to themselves. It’s not bad. It just is what it is. Black Friday, Cyber Monday, etc… It all adds to the holiday promotions – as in discounts. It’s good for the consumer – and for business in general. Of course a discount doesn’t make up for a product not showing up. So it will be the combination of price and experience. NOTE: There are many retailers out there that focus on just the experience, and they are doing quite well!
This is the time to pull back from deep discounts – all together now.
If there was ever a year to wean consumers off discounts, this could be it — coming out of the pandemic and with supply chain issues in the news daily. However it simply won’t happen. It’s a classic example of “retail game theory”: a completely rational businesses would not stop discounting even if it appears it is in their best interests to do so because they are afraid the others won’t follow suit.
Retailers whose brand image depends on value may be able to avoid widespread deep discounting — because customers expect shortages and high prices — but they can’t step away completely from offering deals. Their long-term market position depends on it.
I would not be surprised to see the two Goliaths — Amazon and Walmart — slugging it out with some loss leaders and “rollbacks” where they feel they have enough inventory and can take the margin hit. They are in a market share battle that will last long after 2021 is over.
Early on I don’t think so, but there are a lot of variables at play now that will determine the level of discounting that happens later in the season.
If consumers are reluctant to spend this year, and there is reason to believe that might be the case given some of the economic pressures we’re seeing, then I do think we’ll see sharp promotions — especially later in the season.
Another factor is the impact of supply chain issues on product availability. If inventory is lean, obviously there will be little incentive to discount merchandise.
My other thought is the success of the early “Black Friday” stuff that’s going on now. If these are successful then no discounts. If however they don’t drive sales and retailers find themselves heading into December with poor comp sales for the season, then I think we’ll see some really significant discounts at the end of the holiday season.
Yes. This year is different due to rising inflation and expensive omnichannel necessities. Higher costs coupled with product scarcity will lead companies to offer skimpier discounts across fewer goods.
There is definitely an expectation this year that prices will be higher and items more difficult to obtain – the question will be whether this can be sustained moving forward.
I do expect prices to hold. However the trend can be broken by the first large retailer to blink and start deepening the discounts. To the extent that retailers’ initial gross margins permit, retailers will continue to discount. The competition and the market drive the pricing and the ensuing discounts.
It makes no sense to discount a product that’s going to fly off the shelves at full price. Customers are well aware of shortages and are acting accordingly. Once products are flowing freely again, though, expect those one-day sales to pop back up.
Many retailers will have no choice but to reduce promotional activity but it is business per usual for the large players with buying power and deep pockets.
The fact is that retail planning had already set forecasts a year ago. Discounts and promos have already been planned into the forecast, long before supply chain issues became so chaotic and disruptive. Many thought the pandemic would be over by now and the challenges of getting raw materials and capacity would be a thing of 2020.
Markdown calendars and promotional marketing plans are set months in advance with little flexibility. However the smaller retailers may need to hold off on the discounting as they just won’t be able to afford it this year.
Many of them don’t have the same assortment depth or stock as previous years. The challenge will be in competing with the retailers that have stock, that have promotional activity, and have control over factories and ports. They may not survive this holiday season.
There is reduction in discounting out there? You can’t tell that from my inbox. Gap is “pleased to really pull back on discounting”? There are 15+ offers in my inbox from Gap and Old Navy since last Saturday and it’s only Tuesday.
Many retailers have been offering 30-50 percent off daily since the pandemic began. There are some stores I will never shop full price again because those retailers have trained me to know that I don’t have to. You can’t un-ring a bell, just ask J.C. Penney.
The more important question is, once we have passed the supply chain crisis, will retailers start overloading on inventory and discounts again? The post-recession period a decade ago saw items flying off the shelves. Discounts weren’t so relevant. But retailers quickly returned to their high inventory, hyper discounting ways.
I hope that doesn’t happen again.
Paula, I agree that retailers need to avoid excess inventory in the future. But a lot of the 2021 shortages were their own fault, because of their failure to forecast demand, long before the supply chain issues took over. Smart inventory management in the future will adapt to robust demand where it exists, and will take more aggressive risks where appropriate.
Scarcity is gross margin’s best friend. I’ve always been amazed that retailers don’t apply this logic more often. And it’s not like this years scarcity issues came out of deep strategic thinking. The momentary scarcity we are experiencing will suddenly turn into abundance when all the inventory currently sitting on ships hits the selling floor. So the whole story has to play through. It’s not just less promotions and higher margins through Christmas. What does it all look like by the end of January or February? What does it all look like when all the late (seasonal) inventory is done being cleared? Or are we looking at pack-and-hold scenarios like we did in Spring 2020 when COVID-19 shut down retail? Promotions and discounts may look rosy pre-Christmas only to get downright messy in January and February.
There is very little product on the retail shelves to discount this season. So far, consumers have been notified of higher pricing and low stock levels, and they have adjusted accordingly. I think everyone is fighting for their piece of the pie and at this point it’s not about price, but finding the physical item they are looking to purchase.
Discounts are a shell game that each retailer approaches differently to make it appear like shoppers are getting better deals than often they truly are. They’ll still do that, regardless of shortages. Look at Bed Bath & Beyond. Endless coupons despite claiming they would stop the practice, because they’ve conditioned customers to expect them. Without coupons, they are largely not price competitive. So the premise of a discount is just psychology and barely a bona fide deal.
Shep Hyken is right about the perpetual discount philosophy being a self-inflicted wound. Unfortunately it is a wound that is not healing. There is a phase between a current reality and a desired reality that I call the “shuddering.” This happens when we are required to break through a barrier to get to a promised land on the other side.
Most organizations (and governments) don’t have the courage to pay the price. It hurts. It’s scary. And you become very unsure that you’ll survive. This is precisely why we have so many societal ills that could have been solved a long time ago if we’d only had the courage.
The whole COVID-19 thing is a good example. So many simply couldn’t handle the “shuddering” of wearing masks, seclusion, social distancing and getting a shot. They wrap it up in “freedom” terminology rather than admit it is little more than fear.
In my opinion, the question really is “How much courage does retail have to go through the shuddering it’s facing?”
It’s foolish to discount popular products that are in short supply. This is a once in a lifetime for retailers to reset consumers’ expectations for big discounts.
Discounting will continue as each year it does. Retailers still face mountains of competition and the product shortage will drive them to discount available items rather than excluding discounting. Consumers are so ingrained with the expectation of discounts and the drive to buy during the holidays as they had in the past that it will keep this season focused on deals. It’s human nature and only a select number of retailers will be able (or have the discipline) to avoid discounting — especially with competing retailers nipping at their heels.
I think there will be a “push/pull” selling environment this holiday season. Customers will buy items with profit margins that are rather substantial. These customers are the ones who will buy it because it is “what I want to give” mentality. And they will have the money to do it. That’s the “push.” The “pull” will be lower margin items that stores will use to pull sales they need to get money out of inventories. In either scenario, spending is going to happen, and at a brisker pace than we have all been thinking. The customer mantra is “I gotta get them something.”
Let me think for a minute … no all it takes is one second, the answer is yes if they can get away with it. As kids sometime say … no duh! However, how would you as a consumer, credit cardholder, loyalty program member “feel” if you were promised SAVINGS through your affinity and opt into brand communications and then get NOTHING in return or of value over the key holiday selling season? Be careful with the decisions made now because consumer backlash due to fewer savings opportunities and short supply may not create happy customers in 2022!