Sticker shock could change retailers’ approach to sales

Shoppers watch Macy’s Black Friday specials in Maumee, Ohio, Nov. 27, 2020.

Stephen Zenner | SOPA images | Light Rocket | Getty Images

Keith Fitzgerald has gone to great lengths this holiday season to make sure he gets the perfect gift.

Fitzgerald, a 40-year-old hairstylist, searched online and in stores for a special-edition Lego: a nearly 4,000-part set that resembles the house in the Christmas classic “Home Alone” — complete with booby traps and a zipline to the backyard treehouse. He knew the $250 set would surprise his friend on the last night of Hanukkah.

But when he logged into the Lego website, the set was sold out. There were no nearby stores in stock. Reaching out to family and friends across the country, he enlisted the help of a friend who queued at a store in New York City, bought it for him, and agreed to take the giant box to his house nearby. from Richmond, Virginia.

“The shipping, that’s a little extra, but it’s worth it,” Fitzgerald said.

Consumer buying spree and global supply chain tightness collide this holiday season. For shoppers, that means making hard-to-find toys, clothing and other items, even as retailers like Walmart and Target say there will be plenty of merchandise to choose from on the shelves. It also drives up prices and reverses the script for shoppers who used to be motivated by a deal.

According to Adobe Analytics, which tracks retailers’ websites, US consumers will see smaller discounts across all major gift categories. Electronics, for example, is expected to peak at 22% discounts during the holiday season, up from 27% in 2020. Discounts on toys will peak at 16%, compared to 19% a year ago. And clothing will peak at 15% instead of 20% in 2020, the company predicted.

According to Adobe, shoppers will still see the biggest discounts around major shopping holidays, Thanksgiving, Black Friday and Cyber ​​Monday. Even those prices won’t be that low, though. According to Adobe, customers will pay an average of 9% more during Cyber ​​Week than a year ago.

“Luckily it’s on the shelf”

With consumer demand so high and inventory of some items low, some retailers have gained the upper hand. Shares of Macy’s and Kohl’s rose after retailers reported quarterly results that benefited from lean inventory and few write-downs.

In third-quarter earnings calls, department store leaders said they could pass on the increased shipping costs of shipping and push back the massive price cuts in sales of clothing, shoes and household goods. Fewer items also end up on the clearance racks of department stores. That results in higher profits.

Luc Wathieu, a professor of marketing at Georgetown University’s McDonough School of Business, said retailers don’t have to dangle with discounts in the same way this holiday. In fact, he said, retailers would be stupid to do that. Fear of not finding a sought-after item is enough motivation for people to rush to a retailer’s store or website — and make them pay more.

Retailers no longer have to message their customers with sales in the same way, he said.

“They tell them, ‘Look, the toys you want to give your child may not be there later,'” he said. “‘Shop early. Don’t go for the discounts. You’re lucky it’s on the shelf there.'”

Retrain Shoppers

For retailers, a shift away from drastically slashing prices and competing on price alone could create an opportunity, said Katie Thomas, head of the Kearney Consumer Institute. In the short term, businesses can pass on high material and shipping costs and have fewer items to mark and add to the clearance rack.

In the long run, she said, it could provide an opportunity to retrain US shoppers who have long been addicted to deals.

“Other countries don’t discount like we do,” she said. “We’ve trained US consumers to just wait for everything to go on sale.”

That could have a major impact on companies’ operating margins and boost profits.

She said retailers can test and learn how to price it right or stand out in other ways. Instead, direct-to-consumer companies, such as luggage company Away and clothing retailer Everlane, rarely discount and price their exclusive products or customer service. Some, like Apple, have such a loyal following that people will queue for hours to buy an item at full price.

“I think of it from the simplest consumer point of view, which is, ‘If everyone is waiting to buy everything on sale, then you’re just not priced right or your quality isn’t good enough,'” she said.

Macy’s CEO Jeff Gennette said in an interview that the department store has been testing its pricing approach. It has learned that there is a “price cap” for standard items like a basic T-shirt or jeans, but not so much for a fashion-forward top.

Other retailers have also talked about seeing less price-sensitive shoppers.

Tapestry, owner of Coach Kate Spade and Stuart Weitzman, has noticed that customers are more willing to pay for handbags, even if the products are full price. The company’s CEO, Joanne Crevoiserat, said style, not just low price, inspires customers to buy.

“We see little price resistance,” she said in an interview. “And you know, I think that’s a signal that our brands have pricing power.”

And Newell Brands, the owner of private labels like Calphalon, said consumers have been buying premium versions of cookware and even food storage, according to Kris Malkoski, the company’s CEO of home solutions.

The question, however, is whether that willingness to spend is a short-term shift in consumer mindsets — or a lasting shift in people buying the goods they want, with less focus on price.

Walmart and Target have gone the other way, vowing to keep prices low and emphasize value in an inflationary environment.

Holiday sales are expected to hit an all-time high of between $843.4 billion and $859 billion in revenue, up from 8.5% to 10.5%, according to the National Retail Federation.

Thomas said that if holiday sales meet or exceed those expectations — even in a period when inflation has peaked for more than 30 years — retailers may feel encouraged to keep prices higher going forward.

Fitzgerald, who bought the Lego set, said he’s seen supply chain challenges play out in recent months. In his hair salon, some hair colors, shampoos and other items have been backordered. He recently struggled to find a shower curtain liner in the store when he was getting ready to host an out-of-town guest.

He said he was overjoyed to find the Home Alone Lego set and would like to give it to his friend Will. It’s their first holiday season together – and this year they plan to get engaged. That made the high price and hassle of having the set sent to Virginia by a friend worth it, he said.

“I laid the groundwork for telling him he didn’t get it,” he said. “So I think he’s going to be really surprised. I don’t think I can always surprise him like that, but we’re getting engaged this year and it’s our first big vacation together, so I wanted to make sure it was a memorable holiday season from start to finish.” would become.”

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