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Detailed discounts this season might prove detrimental

Tough promotional offerings are scarce this shopping season, potentially leading to difficulties for retailers offering bigger markdowns.

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3 min read
Retailers struggling to offer big promotions this season might face challenges, especially those...
Retailers struggling to offer big promotions this season might face challenges, especially those relying on deeper discounts to attract customers.

Detailed discounts this season might prove detrimental

In the midst of a holiday season still impacted by the ongoing pandemic, retailers are welcoming the possibility of consumers gathering, celebrating, and shopping this year. However, the hunting for deals is proving less fruitful compared to previous years, even on Black Friday and Cyber Monday.

These high-profile shopping days showed fewer and shallower promotions at many stores, according to various reports. Indeed, on Thanksgiving Day in the U.S., the average discount dropped by 7% compared to last year, while the average order value increased by 11%, despite a 3% decrease in the number of items purchased, according to research from Salesforce. From Nov. 23 to Nov. 25, the average selling price in the U.S. rose 22% compared to the same period last year, per that report. On Cyber Monday, BMO Capital Markets analysts found that the percentage of items on sale decreased by about 600 basis points, although they also saw an approximately 15% increase in the number of sale SKUs they tracked compared to last year.

Wells Fargo analysts noted that this year saw the largest decline in promotional activity since 6 years ago, during Black Friday. Brands such as Adidas, Steve Madden, Skechers, Timberland, North Face, Tommy Hilfiger, and Ugg, along with retailer Foot Locker, were among those observed to be less promotional compared to the previous year.

Still, not every brand is adhering to this new approach. While Black Friday store checks by Brian Ehrig, a partner in the retail practice at consulting firm Kearney, showed lighter promotions at Foot Locker as well as at Nordstrom, he found significant price cuts at Gap (40% to 50%), Macy's (up to 65%), Aritzia (up to 50%), and Madewell (30%). Meanwhile, BMO found Gap to have among the biggest Cyber Monday deals, while B. Riley found all Gap Inc. brands, and not just its namesake, to be "some of the most promotional" within its coverage.

It remains uncertain how long retailers can maintain their pricing power. An influx of supply once ports are cleared may prompt retailers to slash prices once more. As the season unfolds, retailers may also resort to price cuts to entice late shoppers in time for Christmas, given that Black Friday and Cyber Monday sales may have missed some volume expectations in part due to a lack of compelling deals.

In essence, this holiday month is shaping up to be a wild card. As MKM's Meyer put it, "Even if demand were to remain robust, December performance will come down to retailer execution – whether receipts are received on time, late, or at all – and will thus drive both sales and margin performance."

Sources:

  1. Retailers aim for early promotions this holiday season to meet consumer demands
  2. Holiday Shoppers Driven by Value and Desire to Save Money This Season
  3. Retailers Adapt Holiday Shopping Strategies to Navigate Pandemic Challenges
  4. Consumer Behavior Shifts as Faced with Tariffs and Economic Uncertainty
  5. Retail Prices on the Rise Amid Tariffs and Supply Chain Challenges

FAQs:

Q: Why are sales promotions smaller this year compared to last year?A: The ongoing pandemic, inventory management, and economic pressures have led retailers to revise their pricing strategies, resulting in fewer sales promotions and steeper prices.

Q: How are brands maintaining their customer loyalty with these price increases?A: By focusing on offering value through discounts, early promotions, and strategic pricing, retailers have been able to balance customer expectations while maintaining profitability.

Q: Why are retailers promoting early this year?A: Retailers are promoting early to capitalize on consumers' early shopping habits and to remain competitive in a highly unpredictable and dynamic market.

  1. Amidst the ongoing pandemic and economic uncertainties, retailers are adjusting their pricing strategies, leading to smaller sales promotions and steeper prices.
  2. The focus on value through early promotions and strategic pricing has helped retailers maintain customer loyalty during this period of price increases.
  3. In an attempt to capitalize on early shopping habits and remain competitive, retailers are promoting their goods earlier this year.
  4. The holiday season, in the middle of the pandemic, has become a wild card for retailers, with the success of salesdepending on the retailer's execution and timely delivery of products.
  5. As the season unfolds, retailers may resort to price cuts to entice late shoppers, given that Black Friday and Cyber Monday sales may have missed volume expectations due to a lack of compelling deals.
  6. This year's holiday month is shaping up to be a test of retail policy, as consumer demand, supply chain challenges, and economic pressures combine to influence retail markets, health, and business strategies.

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