Over the past 9 months, moderate and up-scale retailers have resorted to unprecedented deep discounts to drive sales and maintain store traffic. And it worked, for a while.
Now, it looks like these price promotions have begun to wear out. The Wall Street Journal had a very interesting article on the topic the other day Discounting by Pricier Chains Fails to Give Retail Sales a Lift.
Discount retailers are holding their own.
- TJ Max: Up 5%
- Ross Stores: Up 4%
- Old Navy: Up 3%
At the same time, revenue for moderate and up-scale retailers continue to decline, even in the face of the most brutal discounting in history.
- Limited: Down 7%
- Macy’s: Down 9%
- Dillard’s: Down 12%
- Bon-Ton: Down 12%
- Nordstrom: Down 13%
- Saks: Down 26%
The easy response is that consumers are being more careful with their money and looking for bargains. But, I think that is only a partial explanation. I believe that, in part, this indicates that the consumer’s perception of a retailer’s prices have become more powerful than the actual price of the merchandise.
Regardless of the true price of the merchandise, perceptions of moderate and up-scale retailers are in conflict with their emotional need to shop “Value”. It doesn’t matter how good the deal is, Macy’s just feels wasteful if you’re worried about losing your job.
This leaves Abercrombie and Fitch in the worst possible position. For the past year they have held the line against discounting; fearing the long term damage it would do to their brand and their margins. Sales crumbled. They finally gave in and launched a huge price promotion. But, it looks like it may be too late; consumers have already branded them as too “over-priced”. Even with all the discounts, their May sales dropped a gut wrenching 28%.
This all suggests that retailers need to pay attention to their brand’s positioning as much as their price points. Just running ads for sales and promotions won’t do the job. The brand’s positioning must be in line with the consumer’s emotional needs, in the same way as prices need to be in line with their wallets.
Regardless of their prices, consumers need to feel that Macy’s is a responsible choice, rather than an extravagance.
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3 Comments
Perception certainly makes a difference, especially if much of what they are selling is the shopping ambiance.
I once bought an expensive silk shirt at Macy’s. a few months later, several of the buttons came off - the threads came undone - and they refused to call it a manufacturing defect. The shirt had been worn once.
I realized that the only value-add from that store was the ambiance - someone else made the shirt, and the store did not stand behind the product. Never went back there.
Enjoyed your insights on this subject. I’m a brand new marketing blogger — just getting the hang of it actually. But I blogged on this topic a couple weeks ago, see “A value is a discount, except when it isn’t “…made a few observations, like discounting is often the worse way to communicate value (ironic!), and value is always in style, in great and horrible economies. I also said that if want to be known as a value brand, then it’s better to focus on providing greater worth vs. a cheaper price. Thanks for the piece!
Consumers nowadays are very clever when it comes to purchasing. And some would opt to buy an item that is on sale rather than regular priced item. But sad to say that the “on sale” item is an “old stock”