The Golden Days of “40 Percent Off” Sales Are OverMarch 24, 2015
Washingtonpost.com | March 24, 2015 – If you’re an avid shopper, there’s a good chance you’ve asked yourself some variation of these questions lately: Wasn’t that store offering a “40 percent off your purchase” promotion the last time I came to the mall? And maybe the time before that?
Indeed, such promotions have become a mainstay at major e-commerce sites and brick-and-mortar stores since the economic downturn, when deep discounts seemed to be the only way to get anxious consumers to make a purchase. For years after the recession ended, the promotions bonanza didn’t slow down as retailers realized that shoppers had become hooked on deals and weren’t ready to give them up.
“It’s become such a normal and pervasive thing for certain retailers to be on sale every day of the week,” said Liz Dunn, chief executive of retail consultancy Talmage Advisors.
But now, as the economic recovery strengthens, some retailers are trying to put the brakes on their years-long promotional ride in hope that they can retrain shoppers to buy things at full price. Retailers from Neiman Marcus to Vera Bradley have said they will be offering fewer promotions this year so as to improve their profit margins and inject more exclusivity to their brands, a move that will require some deft maneuvering in an era when these discounts have become routine.
“They have to differentiate their brand in other ways, because otherwise, it’s a race to the bottom,” said Marcie Merriman, a consumer-engagement consultant at Ernst & Young.
David Kornberg, the chief executive of trendy clothing store Express, said recently that his company took a more restrained approach to promotions during the fourth quarter and that it will continue to do so going forward. Promotions “have been a part of the Express DNA and they will continue to be … however, they will be used more sparingly going forward,” Kornberg told investors during a conference call. “We are structuring many of our future promotions to be more targeted and, at times, less deep and less frequent.” In January, Express chose not to repeat a five-day-long “40 percent off” event that it held last year. It similarly abandoned a four-day e-mail promotional campaign that month that it had run the previous year.
At New York & Co., an Express competitor, chief executive Gregory Scott told investors last week that his company, too, was re-evaluating its promotion strategy as it sees its competitors becoming less aggressive with these offers. “What we’ve really been trying to do is figure out promotions that still have a great call to action, but are not taking everything on sale at the same time and, at the same time, not taking our best styles on sale,” Scott said. For example, Scott said, New York & Co. had expected to sell its line-up of Easter dresses at a promotional price, but then the frocks hit stores relatively early in the season. Now, the plan is to leave them at full price for a while and see if they sell.
Selling items at promotional prices can take a deep toll on a retailer’s profitability. By cutting back on these deals, retailers are betting that while they might sell fewer items, their bottom lines will benefit from the higher profit margins they get from each sale.
Quiksilver, the surfing and skiing-centric apparel company that also owns brands such as Roxy, is pulling back on deals in its 713 U.S. stores and on its Web sites. Last week, executives pledged on an earnings conference call to only offer promotions on past-season merchandise, and to never offer them on technical gear such as wetsuits.
Retail experts say that this commitment to dialing back on blowout-style promotions doesn’t necessarily mean it will be harder for consumers to nab a deal. “They may be dialing back the mass promotions, but they’re going to be more focused on targeted promotions,” said Virginia Morris, vice president of global consumer and innovation strategy at consultancy Daymon Worldwide. In other words, while you might see fewer “30 percent off your purchase” offers, you might start to receive e-mails touting more narrow or personalized deals, in some cases selected for you based on things you have bought previously.
Guess, the clothes and accessories retailer, said recently it plans to shift its promotion strategy in this direction. Ascena Retail Group, the company that owns children’s apparel store Justice, said it is gradually drawing down storewide promotions and will test category-specific deals this spring and fall.
Experts say retailers are likely going to face a serious challenge in weaning consumers off the drug of promotional pricing. “It’s become a way of life,” said Natalie Kotlyar, leader of BDO’s Northeast retail and consumer products practice. And yet as they look to boost their narrow profits in steadier economic times, many more retailers might give the tactic a gamble.