Discount, discount, discount?
It is not surprising to see multiple start-ups around new consumer products. After all we are an economy that rotates around consumer spending. Brands of the past are not resonating with the next generation or more to the point they have not figured out how to evolve with a new set of eyeballs and desires. In the world of retail or wholesale you are never too big not to fail. History has shown us that.
When I worked at Macy’s in the 80’s they began the advent of the “One-Day Sale”. It took place every few months on a particular day that would be repeated the following year on the exact same day. In the business that is known as an anniversary that you have to outdo in sales year to year.
That sale did a few things. It brought a different customer in to the store, it trained the full price customers to consider waiting for that big sale and the good customers got their top sales people to save specific items for them in the back for the big sale. The sale also sold a lot of inventory and in turn lowered the overall margins for the season. We would all get excited about how much volume we did that day but the reality is that these sales slowly killed the business.
Short-sighted? Vicious cycle? Customer mindset shift? The answer to all these questions is yes. It does not only happens in clothing and hard good retailers it happens in the grocery chains too. Groceries push for coupons, in-store give aways, etc. The biggest question is how do shift the mind set of customers to buy a product at full price because they love it and they want it. One customer actually said to a CPG company I am invested in “I love your product, do you have coupons?”
Customers are smart. That is why flash-sale businesses are short-lived. They know that they are not buying top products forever. It is unsustainable. There is so much crap out there on the racks and the mentality is that marking it down will just move the product. How about being more thoughtful about what is manufactured and at what price it will sell at all day. Inflating margins to start and then slowly marking down a product until it sells is just continuing on the downward spiral of the constant sale. Then as a business you never know exactly what your margin will end up being because the price is in constant flux.
Manufacturing is changing too. You can make one top in one day and ship it out the next. There will always be a need for products on the physical floors of stores so that concept of one day manufacturing isn’t going to work for every facet of the business but it will change the overall landscape.
I have never been a fan of the discount because I know it is not a way to build a business. Build loyal customers who love your product. Make products that are ones that your customer wants. You can learn from your customers easier now than you could before with technology.
There is a new customer in town and they are called millennials and the next customer will be generation Z and they are looking for unique, smart, individual personal products that they will be happy to buy at full price anywhere (no loyalty here). The time is now to get out of the discount mindset. Value all day long at full prices is a win for everyone.
Comments (Archived):
Couldn’t agree more. Let’s dispense with the BS and be straight up with the sales process. Want something on discount? No problem, simlply buy it used on eBay.
So I agree with the dangers of discount game… but in retail hard to think of anyone who really does it. I mean remember what a disaster when Apple’s apple store guy went to JC Pennys and tried to go to no discounting? (johnson i think). nearly bankrupted them and he was the freaking laughing stock of wall street analysts. Basic consumer psychology that they like deals.. gives adrenaline rush, they are no good with reference pricing etc. A shirt of 50 or a $100 shirt on sale for $50, the latter will almost always sell better. Hell, I but in a controlled environment a $100 selling for $60 or 70 might sell more on a volume basis and be massively more gross margin basis. Are there are any large retailers (short of apple.. near monopoly.. and not really a retailer) with say over $100 million in annual revenue that don’t do the discount game? There is a reason I am unlikely to get many examplees..
The guy at Jc Penney Watson the right track. He just forgot to inform his board that the stock would tank before it would come back.
You think his no discount strategy was right? I have literally heard no one say that.. but fair enough. they are back to the discount ways now.. assuming that you are refeerring to them doing better now? I believe he doubled down for about 30 months on the simple price strategy. That only works if you are going super discount like say walmart or aldi’s. Even nordstrum’s discount the few times i have been in one
Personally, I would buy a beautifully tailored shirt that fit me properly made with a quality fabric for $100. Problem is finding that shirt. Gotham Gal is right that most of the stuff on the racks is crap. The last few times I went shopping for clothes I came home with absolutely nothing because I couldn’t find anything I liked that fit me properly.
I think that’s a good point, but you probably need to pay $200 for thta shirt.. market has kind of bi-furcated into mass market and “niche or bespoke”. its kind of like restaurants, you find many high end (say $30-40 or more entree places”) or a lot of $8-15 .. but not many $15-25 (live in the midwest so these prices may seem low if on the coasts). But the principle of bi-furcated markets really fascinate me, and I think your point is pretty illustrative of it!
The prices are very different here on the coast. A local everyday restaurant here would be $20-$35 entree. High end would be much higher (I’m in Connecticut in Fairfield County, which is basically very similar in cost of living to NYC/Westchester County/Long Island).I’d pay $200 for the shirt if I could find it.
Why not visit your local tailor? They still have ’em in Connecticut, no?
You become anesthetized by the word sale. Every day is a sale at Macy’s. I love the ease of online shopping, but it really has taken the excitement out of buying for me. Each season I loved to walk into Bloomingdales and Neiman’s and see what was new and interesting. Now I just look at Bergdorf’s site and others and get bored by it all.
Different business, same concept. When I was selling for 3M right out of school, I was always the most expensive product. My competitors competed strictly on price. If I could handle the price objection with something else, I created a loyal customer that would tell my competitors to pound sand when they showed up.
I like the theme you’re on this week. It really resonates. Yesterday you talked about the apparel stores that are going bankrupt, today about some of the reasons why. Your point about the stores being more selective about what to buy is spot on. I’d pay full price for quality clothes that fit me properly. That is the quest and I usually come home empty handed.
Don’t for get the wealthiest, best-educated demographic in history: women over 45. Even though we’re downsizing, we’re trading up. We spend more than all the 21 to 39-year-olds put together. We’re brand loyal and hungry for brands to market to us. Brenda Coffee
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Amen! You said it all. Am I really going to into a Jcrew store and buy full-priced merchandise if I get a 40%OFF SALE!!! every other week? I just don’t get it. Create thoughtful, quality products, at reasonable prices.I had a professor back in college that wrote a good case study in his book about how Zara grew their business by basing product creation off of customer data and never having sales (creating a limited supply and keeping the store refreshed with new styles weekly) http://open.lib.umn.edu/inf…
Zara got it right. That is actually what I was taught at Macy’s as a buyer. Bring in merchandise, move it around, if it doesn’t sell in 6 weeks mark it down and move it out.
Ideally they should just have been bringing in short runs of stuff instead of stocking the same style in all stores. Merchandising styles is so overrated because of different needs in different regions – I never understood how you could have the same sweater in New England and in Florida!!
And you cant
a request. for me there are not enough words in each line of your posts. can the column be wider? just askin’ 🙂
hmmm. let me look at that.
Say that word. Discount is a death-knell, amortized over time. Not sustainable by definition because all diminishing returns eventually approach zero. No sales strategy is viable but retailers tend to avoid that path because the road is so long and narrow on most stretches. Some brands like Hermes and Louis Vuitton do operate no discount policies successfully. However, they’ve both had a couple of hundred years each to build up their massive brands and customer bases. Of course, you don’t need that long to build a big, full-price-paying customer base, but it sure takes longer than 5-10 years. Certainly not conducive to most investors’ or quarterly shareholders’ expectations.