Retailers Need New Strategies To Counter Discounting Pressures

The weather has played funny tricks these past weeks with retail business. First it was too warm, and no winter apparel sold quickly. Then, it did get colder, but the U.S. was hit with a massive, disruptive winter storm that saw Chicago’s temperature never rise above 1 degree Fahrenheit or -17 degrees CelsiusCEL
, and New York City was at 11 degrees Fahrenheit or -12 degrees Celsius. It was very cold. While many diehard fans decided to freeze as they watched football games across the country, others stayed home and did not do the last-minute shopping expected to take place in these final days of the holiday season. This powerful storm punch came on top of a market already jittery because of overhanging threats of recession and other socio-political problems.

Let’s look at the facts. Retailers were counting on the Saturday before Christmas to be a blockbuster day, with many winter clothes in demand. No one counted on a winter-storm to destroy retail momentum.

But wait! There were early signs that brands were taking bold steps to protect seasonal results ahead of the hoped-for last-minute rush; they believed that customers were holding back and seemed determined to create shopping incentives ahead of December 25. Consider these examples: Lands’ End winter coats, fleece garments, and sweaters were discounted between 50 and 70 percent in pre-Christmas promotions. Artificial Christmas trees were 25% off at WalmartWMT
, breaking with a tradition of not putting those items on sale until after the Christmas holidays. Tommy Hilfiger put everything on sale at 50% off on its website through Tuesday, December 26.

Major department store chains such as Dillard’s, who have outlet stores, benefitted from their ability to move merchandise that did not move at an expected pace to their clearance centers. It avoided a cluttered look in their main stores. We also saw another approach exemplified by Dior Beauty; it focused on a four-tier loyalty program that provides exclusive benefits that rewards members’ engagement with the brand to motivate action.

Dries Van Noten, a top Belgian fashion designer, wrote a letter to the fashion industry advocating a realignment of seasonal deliveries and sale periods to reduce brand exposure to aggressive markdowns and sales that he feared were becoming too common. He also suggested the production of fewer goods as well as less time and money spent on travel for fashion weeks and buying appointments. Van Noten did not receive many signatures in support of these proposals at the time. Prada did announce that it will re-focus on full price sales. From the first half of 2019 to the first half of 2022, Prada reduced wholesale sales by -39% while direct-to-consumer sales increased +38% (and those direct-to-consumer sales meant the brand could fully control pricing, etc.). It resulted in a +41% turnover growth. However, this holiday season discounting by world-famous brands made a comeback. Even when weather patterns settle down, the specter of a global recession overhangs the industry. McKinsey now estimates that off-price sales are likely to grow five times faster than full-price sales from 2025 to 2030.

On a positive note, there is a much saner supply chain environment. Shipping is on time; there are few, if any, harbor delays and merchandise is arriving on time. Despite that improvement, the recent frigid weather has left stores with fashion overages which will cause additional markdowns in January.

POSTSCRIPT: I had anticipated a modest increase in Christmas and holiday sales and counted on the last day of the season, which was an extra selling day, to provide a boost in sales. I am now less certain that this has hapened, despite initial momentum earlier in the season. I continue to worry about the first half of 2023. Retailers need to adopt new, more agile merchandising strategies that can respond to external marketplace uncertainties.

Source: https://www.forbes.com/sites/walterloeb/2022/12/26/retailers-need-new-strategies-to-counter-discounting-pressures/