Markdowns Increase Traffic, Reduce Margins

Jan 04, 2005

By George Anderson

Many retail industry analysts believe higher sales reported for the holiday season may have come at a price — lower profits for stores.

Faced with lower than expected traffic at various times throughout the holiday, retailers from Ann Taylor to Wal-Mart marked prices down on merchandise to get more shoppers in the store.

Many were successful. Wal-Mart posted a three percent gain for sales in December after the company openly acknowledged getting off to a slower than expected start over the Thanksgiving/Black Friday weekend.

Mark Friedman, a first vice president at Merrill Lynch, told the New York Times, “We saw some of the most excessive markdowns at stores, including Ann Taylor, the Gap and the Limited’s Express division.” Mr. Friedman and others expect the markdowns to hurt retailers’ profitability for the period.

Moderator’s Comment: Will the 2004 holiday season have an impact on how retailers approach the 2005 season?

We know that at least Wal-Mart will take a different approach to Black Friday than this year. The lesson here for the retailer and its competitors: there
is no Wal-Mart without a price advantage.

George Anderson – Moderator

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