Sticker shock could change retailer’s approach to sales

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

Stephen Zenner | SOPA Pictures | LightRocket | Getty Images

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

Fitzgerald, a 40-year-old hairstylist, searched online and in stores for a special Lego edition: a set of nearly 4000 pieces that looks like the home of the Christmas classic, “Home Alone” – with traps and a zipline to the treehouse. He knew the $ 250 set would delight his boyfriend on the last night of Chanukah.

Yet when he logged into the Lego website, the set was sold out. No store nearby had any in stock. He contacted his family and friends across the country and enlisted the help of a friend who was queuing at a New York store, bought it for him and agreed to mail the giant box to his home. near Richmond, Virginia.

“Shipping is a bit more, but it’s worth it,” Fitzgerald said.

The huge consumer appetite to spend and the global supply chain crisis collide this holiday season. For shoppers, this makes some toys, clothing, and other desired items hard to find, although retailers like Walmart and Target say there will be plenty of products to choose from on the shelves. It also drives up prices and reverses the scenario for buyers who were previously motivated by an offer.

U.S. consumers will see smaller discounts across all major gift categories, according to Adobe Analytics, which tracks retailer websites. Electronics, for example, is expected to peak at 22% in holiday season discounts from 27% in 2020. Toy discounts will peak at 16% from 19% a year ago. And clothing will peak at 15% instead of 20% in 2020, according to the company.

According to Adobe, shoppers will always get the biggest discounts during major retail holidays, Thanksgiving, Black Friday, and Cyber ​​Monday. Even those prices won’t be that low, however. On average, he estimated that buyers will pay 9% more during Cyber ​​Week compared to a year ago, Adobe said.

‘Fortunately he’s there on the shelf’

With consumer demand so high and stocks of some items low, some retailers have found themselves with the upper hand. Actions of Both Macy’s and Kohl’s rose after retailers released quarterly results that benefited from reduced inventory and some markdowns.

In third quarter earnings calls, department store executives said they were able to pass on the higher costs of shipping and cut the huge price drops in the sale of clothing, footwear and household items. Fewer and fewer items are also found on the liquidation shelves of department stores. This translates into higher profits.

Luc Wathieu, professor of marketing at Georgetown University’s McDonough School of Business, said retailers don’t need to give discounts the same way during the holidays. In fact, he said, retailers would be stupid to do so. The fear of not finding a highly sought-after item is enough motivation to make people rush to a store or retailer’s website – and get them to pay more.

Retailers no longer need to message buyers the same way with sales, he said.

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

Buyer recycling

For retailers, moving away from drastically discounted prices and facing competitors purely on price could create an opportunity, said Katie Thomas, head of the Kearney Consumer Institute. In the short term, businesses may pass on inflated material and shipping costs and have fewer items that are tagged and added to the clearance rack.

In the long run, she said, this could offer a chance to retrain American buyers who have long been addicted to bargains.

“Other countries don’t discount like we do,” she said. “We have trained American consumers to wait until everything is in order.”

This could have big implications for companies’ operating margins and could drive up profits.

She said retailers can test and learn how to price appropriately or differentiate themselves in other ways. For example, companies that go directly to consumers, such as luggage company Away and clothing salesman Everlane, rarely give discounts and instead tout their exclusive products or customer service. Some, like Apple has such a loyal fan that people will be lining up for hours just to buy something at full price.

“I think of it from the simplest consumer point of view, which is ‘If everyone is waiting to buy everything at full price, then your price is not right or your quality is not good enough’,” she declared.

Macy’s CEO Jeff Gennette said in an interview that the department store has tested its pricing approach. He has learned that there is a “ceiling price” for basic items such as a basic tee or a pair of denim jeans, but not so much on a fashion top.

Other retailers have also spoken of seeing buyers less price sensitive.

Tapestry, which owns Coach, Kate Spade and Stuart Weitzman, has noticed that customers are more willing to pay for handbags, even when the products are overpriced. Company CEO Joanne Crevoiserat said the style, not just the low price, makes customers buy.

“We are seeing 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, owner of private labels like Calphalon, said consumers are buying high-end versions of cookware and even food storage, according to Kris Malkoski, CEO of the company’s home solutions.

The question, however, is whether this willingness to splurge is a short-term change in the mindset of consumers – or a lasting change in people buying the products they want, with less money. emphasis on price.

Walmart and Target have flipped the other way, promising to keep the price low and focus on value in an inflationary environment.

Holiday sales are expected to hit a record between $ 843.4 billion and $ 859 billion in sales, which is an increase of 8.5% to 10.5%, according to the National Retail Federation.

Thomas said if holiday sales meet or exceed these expectations – even during a time when inflation peaked more than 30 years – retailers might feel emboldened to keep prices higher in the future.

Fitzgerald, who purchased the Lego set, said he has seen supply chain challenges play out in recent months. In her hairdressing salon, some hair colors, shampoos and other items were out of stock. He struggled to find a shower curtain liner in the store recently as he prepared to greet a guest from out of town.

He said he was thrilled to find the Home Alone Lego set and couldn’t wait to give it to his boyfriend, Will. It’s their first vacation season together – and this year they’re planning to get engaged. This made the price tag high and the hassle of having the set sent by a friend to Virginia, he said.

“I set the stage to tell him he didn’t understand,” he said. “So I think he’ll be really surprised. I don’t think I can always surprise him that much, but we will be getting engaged this year and this is our first big holiday season together, so I wanted to make sure it was going to be. a memorable holiday season from start to finish. “

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