Retail still soft, says MIT expert, deep discounts may not happen

Those stories about how strong post-Thanksgiving sales indicated a major retail recovery this shopping season may have been more hope than reality, according to an MIT Sloan School of Management retail industry expert. At the same time, shoppers may have to wait a while to see the same deep discounts they enjoyed last year—if they see them at all.

“All that excitement about retail sales the first weekend after Thanksgiving may have been overstated,” said Prof. Duncan Simester, who checked in last week with his department store and catalog industry contacts. “No one was very optimistic about this season to begin with, but given how dismal last year was, people were expecting at least some improvement. So far, those expectations are being met but not exceeded. The stores have had more people in them than last year, so everyone is at least somewhat upbeat. Overall, however, I don’t hear too much enthusiasm.”

And while news about the economy may be positive, it isn’t necessarily going to improve consumer confidence in time for this shopping season, said Simester. “It does look like the economy is really starting to grow, but there has not been such a growth in actual employment. And if you don’t have a job, you obviously can’t spend that much.”

Last weekend’s snow crippled shopping in the northeast, but the weather boosted at least one market segment, said Simester. “People selling apparel, especially outer-wear, were actually quite excited about the weather.”

While they are not so generally excited about the broader outlook, retailers are holding off on steep cuts on merchandise prices. “People have not been forced into a lot of discounting yet,” said Simester. “They are still waiting to see if they have to. The question is whether consumers will delay their purchases until they see those discounts happen. The bad weather may actually help retailers avoid discounting, especially in apparel.”

Ironically, reports of stronger retail sales—even if somewhat overstated—may also help stores avoid discounts, Simester said. “If consumers hear that a lot of purchasing is already going on, it can make them more willing to buy without a discount.”

At the same time, retailers must be cautious about altering consumer expectations about discounts and big sales. “If a retailer discounts an item but removes the word ‘sale’ from the sign next to it, our research shows that demand for that item will fall by 40%. So the challenge for retailers is to make people buy right now, rather than wait for big discounts or lower prices in the future.”

Changes in this year’s inventory patterns have also created less need to discount, he said. “Last year, retailers had lots of excess inventory that they had to get rid of. This year, low expectations led to low inventory, and that means less pressure to discount. My sense is that if we see major discounting at all this year, it may be pretty late in the season. And I don’t think you’ll see it to the extent of last year.