Lousy title . Corny, clichéd, and crap. But surely it’s got to be better than An analysis of the effectiveness of discount pricing strategies within the U.K. retail sector. If it isn’t you will have stopped reading this post by now, if you have managed to get this far. Yet, feedback suggests otherwise. At least 50% of my readership say otherwise. I know that Julia (the 50%) reads right through to the end. Put that in your pipe and smoke it (old English phrase for..my husband can’t do wrong).
There is nothing new in retail discounting. The first Woolworths was a Five Cent store. Marks and Spencer’s were originally Penny stores. When Jack Cohen (Tesco) started selling groceries, it was surplus stock. Throughout the decades many retail discounters have come and gone . In the U.K. the original Kwik Save supermarkets, expanded exponentially. During the seventies and eighties, various discount operators flourished then vanished , such as The House of Holland, Bewise, and many others. Today, there are those that thrive. The big daddy of them all is, of course , Walmart in the USA . Now still the worlds largest retailer. Throughout Europe, there are many successful discount retailers , Action and Hema in the Netherlands, Aldi , Schwarz and Penny Markt in Germany, and Carrefour in France, to name but a few. Within the U.K. there are some of our most profitable retailers eg B&M Stores, Home and Bargain. These all prove , to a degree, that it is and can be very effective form of retailing. Primark for example have just released another set of very impressive Christmas figures.But that’s not my argument. This are professional discounters who have built their business model on discounted prices .
Currently, every other retailer (well, not quite every) believes that the panacea to all retail ills is discounting. It ain’t and never will . Please somebody tell if I’m wrong but there are fundamental issues with discounting that undermines most retail models. If we assume that the discount being offered is real and true discount, ie not some bit of old tat or clearance you have bought in just to offer at an artificial discount. There are three immediate affects …
Loss of profit margin in percentage terms.
Loss of cash margin in real terms.
Simple example of selling something at £4 instead of £5=25% lost profit margin, and £1 less taken through the till. There is the hope that you may sell two items instead of one, but unless the customer needs or wants two , it maybe just forlorn hope. But if they do buy two it puts of a possible repeat purchase, which may have been at the real price.
Most importantly, is the loss of consumer confidence. By that I mean the consumer no longer believes in the discounted price, worse still , the real price . I, firmly, believe that is where we are today. The year is littered with sales. Black Friday, winter sale, summer sale, Boxing Day sale, blue cross sale (Debenhams- done them a lot of good), easter sale, Christmas sale, end of season sale, bumper sale, clearance sale, the list is endless . Even if the discounts are real, there are so many that the punter knows to hang on as there will be a sale around the corner.
Here’s another. Consumer inflation over recent years has been notoriously low. Retailers costs are the complete opposite . To pursue pricing policies which reduce your margins unless you have been able to combat those costs, is sheer lunacy.
Discounting is effective in clearing unwanted stock. However, today the danger lies in the fact that there is often good reason for it being ‘unwanted’. Bad buying, change in fashion or simply there is better available elsewhere, and maybe even at a better price. Within my own market, product that is past its want by date has in practice no value . When Frozen 2 was released, Frozen 1 merchandise could be barely given away . The reality is that old stock is bad stock.
Retail History repeatedly illustrates that discounting is only ever a short term tactic. Today it is rarely even defensive. The change in retailing has been rapid and dramatic (I do not refer to the effect of online operations). The change in consumer behaviour is equally dramatic (again disregarding onliners ). Any non discount retailer that uses discounts as a means to continuous survival, will not survive.
Disco dancing may have made Travolta into superstar, but it’s alliteration for retailers will take them to the back of the class, with the rest of the dunces.
You should be dancing , yeah, you should be dancing ,yeah
But not discocounting.