What If There Were No Discounts?

Jan 07, 2005

By George Anderson

Report after report following the Christmas holiday suggest retailers (excluding those who specialize in luxury goods) that came out with sales at or above plan did so because
of deep discounting in the final week leading up to Christmas.

Ken Perkins, an analyst at the research firm RetailMetrics, was among those who agree with this assessment. He told the San Jose Mercury News the holiday business “was
just okay” and retailers that ended on the plus side were “clearly salvaged by the last-minute shoppers and steep discounting.”

Mr. Perkins also observed that the holiday season was a continuation of the months leading up to it. Retailers who were performing well prior to the holiday continued to do so,
while those who were struggling, followed suit. Even discounting and product exclusives weren’t enough to get things turned around for those falling into this group.

Cases in point: Wal-Mart and Toys R Us.

As has been covered here and elsewhere, Wal-Mart management was not thrilled with its store sales coming out of the Thanksgiving weekend. In response, Lee Scott and company chose
to cut prices on a limited number of popular items (also raising prices on other slightly less popular products at the same time) and alter its advertising plan. The result, not
fully accounting for gift card sales or factoring in online purchases, was that Wal-Mart finished December with comparative store dollar sales up three percent.

Leading up to the holiday season, Toys R Us had made a point of letting the world (at least the business press) know that it was not going to cede any ground to Wal-Mart when
it came to pricing popular toys. In addition, the retailer had worked out exclusive arrangements with manufacturers on a number of toys to draw shoppers into its stores. In the
end, same-store sales for the chain were down 2.2 percent.

Sean McGowan, toy analyst with Harris Nesbitt, gave Reuters this assessment of Toys R Us’ performance. “It’s not as bad as it could have been,” he said. “But given their price
aggressiveness, inventory, freshness, new management and new advertising themes, I would have thought they’d done a little better.”

Moderator’s Comment: Do you agree with the idea that late discounting turned the holiday season around for some retailers or do you believe most of those
consumers were going to wind up shopping and buying in those stores even without the price cuts?

George Anderson – Moderator

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