At some point in recent years, 50% off became the new normal, with shoppers growing increasingly accustomed to dramatic markdowns—and correspondingly unimpressed with a measly 10% off. Stores jacked up list prices so that the markdowns seemed even more tempting. Overall, the result is that shoppers are now addicted to discounts, and that retailers are struggling mightily to sell anything at close to full price. Viewing the discount-heavy model as a race to the bottom — and a confusing, inefficient one at that — some retailers are going cold turkey on major markdowns, even during the busy holiday shopping season.
The most obvious proponent of this approach is JCPenney, which promised a “no more fake prices” makeover earlier this year, featuring the elimination of coupons, nonstop sales, and inflated original prices in one fell swoop. The JCPenney experiment hasn’t been embraced by shoppers, and as sales have plummeted, the retailer has found it necessary to tweak its marketing and sales strategies more than once.
Nonetheless, the no-discount (or at least less-discount) model promulgated by former Apple Store guru and current JCPenney CEO Ron Johnson has obvious appeal to retail executives. To varying degrees, this approach is being embraced by major stores such as Lowe’s, Target, and Saks Fifth Avenue.
The Associated Press recently highlighted the trend of retailers following in JCPenney’s footsteps, largely because of the corrosive effects of the nonstop discount model in fashion during the heart of the Great Recession:
It has bred a group of deal junkies that won’t shop unless they see “70 percent” signs or yellow clearance stickers. They’re a thorn in the side of most retailers because the discounts it takes to get them into stores eats away at profits.
Home improvement giant Lowe’s, for instance, has lowered prices on a variety of items, hoping not only to compete better with Home Depot, but to eliminate the need to be constantly rolling out major sales. Unfortunately for Lowe’s, the everyday low price concept has thus far worked for it about as well as it’s been working for JCPenney. Revenues have dipped, leading Lowe’s CEO to admit, “We knew it was going to be difficult … we may have been overly optimistic.”
Not long ago, even upscale retailers such as Saks Fifth Avenue were regularly slashing prices on designer goods by 70%. SmartMoney now reports, though, that over the past few months, Saks has “pared down the discounts,” and the sales that remain “are shorter and offer smaller price cuts.” The shift in getting rid of sales, according to a company executive, is to “reinforce that we’re not a promotional department store.”
If customers grow accustomed to seeing merchandise regularly marked down by 20%, 30%, or even more, who would bother paying full price?
Target, which has plenty of sales but is also known for good value with its everyday prices, has also gone public with a renewed focus on avoiding deep discounts. According to Reuters, Target CFO John Mulligan says that the retailer is even willing to forego some sales in the course of the holiday season rather than resort to dramatic discounts. “We aren’t interested in driving sales at all costs,” Mulligan told investors.
Will the less-discounting model work? It doesn’t seem to be working for shoppers, who should logically prefer everyday low prices, but who thus far show a clear preference for dramatic discounts, even if they’re based on absurdly inflated original prices. It’s these discounts that give shoppers a way to keep score, even if the game is rigged and the numbers are fairly meaningless.
Based on the recent experiences of JCPenney, as well as a long history of consumer behavior, what retailers can expect from fewer sales (i.e., discounts) is fewer sales (i.e., consumers purchasing stuff).