Comments due by March 29, 2015 After more than a year of clearance items, markdowns and other price promotions, retailers are finally saddling up and trying to break consumers' addiction to discounts.
But will shoppers call their bluff?
According to analysts' store checks, the deep discounts that have plagued the retail industry—and slashed companies' margins in their wake—have moderated over the past few weeks, the result of lean inventory levels and a more confident consumer.
Mario Anzuoni | Reuters
Pants for sale at an Urban Outfitters store in Pasadena, California March 6, 2015.
Still, promotions remain elevated—something experts don't expect to abate any time soon.
"The core underlying issue has not changed … in that there's an imbalance of supply and demand," said Craig Johnson, president of Customer Growth Partners. "We believe that this is going to be a promotional spring, just like it was a promotional holiday."
Don't expect a deal here
Retailers running the gamut of categories, including teen labelAmerican Eagle, women's specialty store Express and leather goods firms Coach and Kate Spade have all recently pulled back on their promotional strategies.
At American Eagle and Express, shoppers have continued making purchases despite a reduction in discounts, whereas Coach is preemptively pulling back on its promotional cadence in hopes of restoring its reputation as a must-have brand. Similarly, under the new leadership of CEO Brian Cornell, Target has focused more on the "expect more" aspect of its "expect more, pay less" strategy.
And strong demand for activewear, a category in which women's sales increased 8 percent last year, has allowed companies including Under Armour and Lululemon to maintain their premium pricing.
"The segments of apparel land where there's strong growth, you're not seeing [promotions]," Johnson said.
Retailers have also been less aggressive with their email blitzes. According to data from Experian Marketing, 52 percent of retailer mailings had offers in the subject line over the holiday season; that number fell to 44 percent in January, and dipped further to 37 percent in February.
That's not to say that things have leveled off across the mall. According to Sterne Agee analyst Ike Boruchow, who tracks promotions across 46 retailers and their websites, the first two weeks of March offered a smaller percentage of "more promotional" events compared to a year ago. Still, only 27 percent of the names tracked were regarded as "less promot
Boruchow noted increased discounting at Gap's namesake and Old Navy brands, as well as at Michael Kors. Other analysts cited deep promotions at Abercrombie & Fitch and Hollister, as well as Ann TaylorLoft.
"Despite the sequential improvement, the absolute level of discounting remains elevated," Boruchow wrote in a note to investors.
Shoppers, don't worry just yet
While promotions have eased over the past few weeks, consumers don't need to wave goodbye to the steep discounts they've grown accustomed to. Analysts point to delayed spring deliveries—a result of the backlog at the West Coast ports—and an earlier Easter as two potential catalysts for deals into April.
There are also several fundamental changes that will keep the sales rolling. For one, the popularity of off-price and fast-fashion stores will continue to put pressure on full-price stores. One example is Abercrombie & Fitch's A&F Essentials line, which took the price on basic T-shirts from $30 to around $15, Johnson said.
For another, despite some consolidation in the industry—including trimmed store fleets and recent bankruptcy filings from brands such as Delia's and Coldwater Creek—there are simply too many apparel stores out there, Johnson said.
That leads to a lot of sameness when hopping from store to store, Johnson said. Therefore, aside from retailers that offer differentiated merchandise or a limited quantity of items, shoppers are savvy enough to know that if they wait a few weeks, they can get the same thing at a lower price.
"Nobody ever buys stuff at full price when it first goes onto the floor early in the quarter … because they see the pattern month after month, year after year," Johnson said. (CNBC March 16, 2015)
12 comments:
Consumers know that if they wait just a little longer, the item that they want to purchase will go on sale. Sometimes when I go shopping towards the end of a season, the salesperson tells me when I'm checking out that those shorts will be on sale in just 2 weeks. Therefor I wait those 2 weeks.
Since there are so many retail stores that sell close to the same items at close prices, there is a lot of competition. For example Abercrombie and Hollister sell almost the exact same products with the same prices, only there is a different logo. Same with Under Armour and lulu lemon. Consumers are buying these products just for the name. These stores must do something in order to beat out there competition. That is why they do different kinds of sales.
I think that the effect that sales have on consumers is really circumstantial. Income is obviously a big role. There are consumers who are so accustomed to buying from certain brands, because of their great deal of income, that a lesser brand having big sales will rarely affect them. On the other side of the spectrum, there are consumers with less income that take advantage of every sale they can find and do not buy things at full price. It is true that many consumers do not buy things right away and are willing to wait weeks for them to go on sale. However, I think essentially consumers will continue to buy as they have from the same brands that they have regardless of promotions at greater or lesser competition stores.
Sales play a huge role in the retail business because that is when customers usually purchase items. Sometimes sales of certain retail business don't even entice customers to purchase their items since brand name plays a huge role in preference. For example, if Abercrombie was not having a sale but another not so large retail company was having a huge sale, most people would probably still be inclined towards buying items in Abercrombie just because they are familiar with the brand.
Overall it is true that retail business will sell more items during sales season but it's also true that big companies don't have to worry about smaller companies having sales cause they know that their customers will still purchase items from them no matter what.
I think it's safe to say that the clothing industry struggles to make a profit. People of an average income certainly are not very preoccupied with buying clothes. They have bills to pay and other important priorities. Retail stores focus on lowering prices to bring in consumers looking to purchase several items. It is clear that stores are constantly fiddling with prices in an effort to boost sales. The funny thing is, most of the time subtle changes in pricing have no affect on the consumer's behavior. It is interesting how the act of going to a store to purchase clothing is becoming something of the past. Online shopping and extremely successful companies like Amazon have taken it all over.
I like Target's "expect more" strategy. In Canada they expected more and look what happened. No, the consumer drives the show and by and large they are after getting the most for the least. Not likely to change anytime soon. If you simply drop your inventory levels as a means to reduce discounts, others will fill the gap.
Sales are a smart pitch to make a little extra money on items left over from past seasons. Also if competition is close with another company of the same goods a sale or a price cut may increase the amount of customers away from the competitors store, therefore increasing revenue in the end for the store with sales. It may not be very important for some people but think of black Friday and the amount of people lining up to attack any and every person/thing possibly in their way.
Over a year of clearance items, markdowns, and other promotions, retailers are finally cutting back on discounts. The retailers believe that they have created a strong enough consumer base so that no matter what the prices become, they will still have a steady profit. For extremely large companies, such as Underarmour and Nike (even though Nike wasn’t mentioned in the article, this will prove to be true. If someone wants athletic wear, they will pay the premium for the brand. However for companies such as American Eagle that have much more competition down low, they will probably need to keep slashing the prices as most of the clothing is pretty similar to its competitors. I believe that retailers will continue with the sales as they always have been, this is probably just some industry politics going on.
I think the majority of people know to not buy clothing, or really an item, when it comes out. Unless you don't care about paying full price. Stores such as Marshalls and TJ Maxx in addition to outlet malls allow consumers to purchase the same item for a discount if they wait. In addition places like Amazon and 6pm.com have also put pressure on as they offer the same products at a discount. Of course there are some people that care about the brand and will purchase something just because of it, regardless of price. Companies want to make as much profit as possible so giving out so many discounts is decreasing their profit. Obviously they want to cut back on the promotions they offer.
In regards to savings and discounts, I believe that it truly depends on the person. Some people might see a product that hits the market and want to buy it right away no matter what price it is, while others will be more realistic and wait for a discount; an examples of this is clothing. Usually when a new clothing item hits the market, many people want to jump on the opportunity of buying the product right away before it sells out even if the price is high. Others will be more realistic and wait a couple of weeks until the store offers a sale on the item. Waiting for that discount is more economical and cost efficient. You are essentially getting the exact same item just at a more reasonable price. People may also wait for these discounts due to income. Maybe some people cannot afford an item that they really want, but they know if they wait for that discount it will be more reasonable and within their budget. "Nobody ever buys stuff at full price when it first goes onto the floor early in the quarter … because they see the pattern month after month, year after year," Johnson said. I agree with this quote that Johnson said. If you wait that couple of weeks or a month you can have that item you really want at a cheaper and more reasonable price!
Sales are mostly used as a customer attraction. An item sold at 65 percent is more appealing to a customer than something at full price. Items that go on sale are usually older items that are taking up inventory space. The sale price placed on the item is still profitable for the company so the deception in sales is deep. But in turn, the consumer is still saving money by purchasing an item that has been on the market for longer, so there is no harm.
Sales and discounts are a huge part of businesses today, espically clothing stores or electronic stores. Most rational people usually wait until a certain item goes on sale until they purchase it. I also think that income has a huge part in what consumers buy and when they buy it. People with a higher income will not really care when something is on sale and somebody with a lower income will buy something if it is on sale. In the article, the businesses that tried not to do sales as much was because they wanted their brand to be known as a expensive, luxury brand. That is what I got from it. Companies also use sales as a way to beat their competition. If a store is having a better sale then somewhere else, everybody will go to that store. It all depends, because sometimes people will think because it is on sale that it is not as good but they aren't always right about that.
I believe that when it comes to sales and discounts it depends on what type of shopper you may be. Certain people may decide to buy an item regardless of the price, and others choose to wait until the item would be sold at a discounted price. One example is sneakers; a person might decide to buy a pair of sneakers that appeal to their liking regardless of the price tag while another would choose to wait it out and see if that particular shoe may be available on sale in a couple of weeks or months being sold at a more convenient price than the original. Another factor that plays an important role is certainly the shopper’s income. Some people cannot afford to buy certain items that are sold at their original prices, so they rather wait for that discount which would be more reasonable and convenient for them.
Now as for the discounts and other promotions, retailers are cutting back on giving markdowns because they believe that they have by this point created a strong customer base that regardless of the price, people are still going to purchase their items. Brands play a huge role in this because people will prefer to pay top dollar for a well-known brand rather one that isn’t as recognized. Companies such as Nike, or Apple don’t necessarily have to rely on handing out discounts or markdowns on their items because they are assure that without those reductions people are still going to pay for their items at full price. However, for companies such as Hollister, Abercrombie & Fitch, H&M, etc. these clothing companies have multiple competitors and having these markdowns or discounts on their items are beneficial to not only their name brand but also their company’s profit. Because certain people tend to seek out deals, or ways to fully maximize their utility.
Overall, business will attempt to sell more items by putting on sales, however these sales won’t affect big companies because it is inevitable that their customers will still purchase their items nonetheless.
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