Is Discounting Spinning Out of Control?

We all know the arguments against discounting – not only does it hurt margins, many say it “cheapens” the jewelry product and message. The CEO of Zale has spoken forcefully against only having a price strategy (which his company did for many years).  And yet, according to the New York Times, not only is discounting here to stay, it’s escalating:

 

“What we’re hearing anecdotally from different retailers is that when they’re putting something on sale at 30 or 40 percent discount it is no longer having an effect on consumers,” Ms. Greenberger said. “They’re having to cut prices 50 to 60 percent to get consumers interested.”

 

In this environment, every retailer has to price themselves competitively. That’s a given.  And yet, sometimes it seems retailers become so focused on price that they seemingly ignore the basics.

 Via a discussion on retailwire, I found a post by someone called the “Retail Doctor,” who relates his experience shopping at Macy’s Herald Square:

 

I stopped at a display of gloves.  I need a new pair as its getting below freezing in upstate – I had a need.  I went over to the Isotoner Glove display.  A sign “30% Off.”  Above that another sign “Use your Macy’s card and get an additional 15% off.”  I picked up a pair and tried them on, went to the counter where a pleasant woman was standing at the register.  “Do you have your coupon?” “Uh, no.” “That’s too bad, if you did you would have gotten an additional 15% off.”   Now I got them for $20. And I could have gotten them for $17? WOW. Macy’s CEO Terry Lundgren, I was ready to buy them at the $35 tag.

 

So not only is Macy’s losing money on all this, but telling someone “You could have gotten it cheaper with a coupon” strikes me as kind of a turn-off. Are discounts now so much part of the retail experience that when customers don’t get them, they are made to feel stupid?

 

The Retail Doctor sums up:

 

I learned this in the hotel business when the owner wanted to cut rates to increase occupancy. What happened? Occupancy moved up 2%, which was insignificant. What did happen is the people who would have paid more got a deal and profits fell. I can’t bring people to the beach in the winter with a discount. What we needed to do was get more money out of those who came.

 

And you know what? We were able to double our average daily rate, put more money into the rooms to justify higher rates and occupancy and profits soared. But it took discipline and avoidance of the discount philosophy so prevalent in the news today.

I’m sure there is going to be plenty of discounting this season; according to this article, Lord and Taylor is already offering diamonds at 60% off. But long-term, developing more appealing product is really where this industry needs to go.

JCK News Director