Promotional activity has altered over the past few years. Retailers push online discounts and break from traditional January Sales, so what’s the best tactic to pursue?
Retail promotions used to be simpler - two Sales a year in winter and summer were enough for many, and aggressive discounting was limited to the grocery sector.
But that was before the recession, and before online groups such as Amazon arrived to undercut and drive down prices.
Today, customers demand year-round low prices, and winter promotions begin well before Christmas, including intensive discounting in the last few shopping days.
Next is one of the few retailers that famously insists on holding out until Boxing Day to go on Sale.
But while regular Sales have become the norm, Howard Langer, head of pricing and promotions at ITIM Retail, believes in 2012 there were more limited pre-Christmas deals than what he calls “2011’s blood bath”.
He says: “Retailers seemed to be more cautious in the run-up to Christmas 2012 - I suspect they didn’t buy big this time round - wanting to preserve margin rates and keep them as high as possible.”
But after a calmer start to the festive period than the previous year, deeper discounts were being introduced in the last few days before Christmas, according to Mark Wright, marketing director of internet price monitoring firm Competitor Monitor.
Major discounts began on December 20 - a day earlier than 2011. There was also an initial discount of around 25% across fashion and seasonal lines in 2012, compared with 22.5 % the previous year.
Who blinks first
But is pre-Christmas discounting the right thing to do? It can make retailers look weak and shoppers are catching on to the fact that deals are available all year, making them less willing to buy full-price product.
Wright says that retailers shouldn’t necessarily be the first to go on Sale before Christmas, but must know what their peers are up to and react accordingly. “It’s about being aware and being a fast follower,” he says.
Retailers need to keep an eye on the competition and be prepared to move quickly if others start discounting sooner than planned. Many are making increasingly tactical decisions based on what happens in the market.
Online launch dates
Launching online Sales a day or two earlier than store Sales has become a popular strategy. Marks & Spencer launched online at 12pm on Christmas Eve and John Lewis at 5pm, while Amazon launched its Boxing Day Sale at 9am on Christmas Day, allowing shoppers to hit the Sales as soon as the presents had been opened.
The online channel can make it easier for retailers to manage Sales by enabling them to move quickly and launch promotions at the click of a button. Businesses can also respond to variations in stock levels and competitors’ actions in an instant.
The policy certainly seems to work for some. John Lewis had a record first hour to its Sale, with orders up 70% on 2011, and on Christmas Day visitor numbers were up 40%.
At Currys and PC World, the Sale began online on Christmas Eve and in store on Boxing Day. The websites had 1.5 million visits on Christmas Day. Figures from Experian Hitwise suggest there were 100 million visits to retail websites in total on Christmas Day. There are other benefits of launching early online too. Retailers such as Next reward regular or high-spending customers with early Sale previews to help build loyalty.
Online Sales can also help retailers forecast what will happen in store. “If you can launch a Sale online even a couple of days earlier than in store, it gives you an indication of what’s going to move so retailers can use that opportunity to adjust pricing and stock,” says IBM Europe smarter commerce solution consultant James Lovell.
But for some, the pre-Christmas Sales are having a negative impact on post-Christmas promotions. “Retailers are making deeper cuts than ever before. We are now seeing promotions on top of promotions,” says Lee Gill, senior vice-president of supply chain management, merchandising and pricing software specialist JDA. “At the same time, promotions are lasting longer and are more frequent than in the past. This has meant that the traditional January Sale has lost some of its lustre,” he says. As a result, some retailers are returning to stricter discounting. Fat Facelaunched its Sale online on Christmas Eve and in store on Boxing Day with typical discounts of 50%, lasting between two to three weeks - a deliberate execution of a short, sharp Sale.
Fat Face buying and merchandising director Simon Pickering says: “Our stance over the past three years has been to adopt shorter Sale periods with appropriate initial discounts,” he says.
This avoids cannibalisation of sales, he adds. “Customers have definitely ‘wised up’ to brands’ discounting habits,” he says. “When brands constantly discount, the minute they revert to a full-price stance, customers will just hold off buying until the discounts launch again.” Next has a well-known strategy that includes a summer Sale, January Sale and two mid-season Sales.
Kurt Salmon director Sue Butler says such clear execution works well. “Customers know if they hit a Next store at the start of the Sale then they are guaranteed half-price product. The stores also make it easy for the customers to shop and buy large quantities - organising the shopfloor so it’s easy to navigate and handing queuing customers baskets ready for when they enter the store,” she says.
John Lewis also has a traditional January Sale policy. The store Sale launches on December 27 with a mix of discounts and promotions. This approach can help boost shopper anticipation, and the retailer reported sales of £31.7m for its first day of clearance .
John Lewis head of buying support Dave Suddock says ‘special buys’ are an important part of the retailer’s Sale. “Working with our suppliers, we negotiate one-off discounts that we can pass on to customers. We also find special buy products allow us to better plan our marketing and customer communications about clearance,” he says.
So will January Sales disappear altogether? Possibly, if retailers aren’t careful, says Jeremy Michael, managing director of customer insight agency SMG. “We need to bring the balance back to Christmas being the time to make money rather than discount, or we will end up in the situation where the January Sales will start in November and the true January Sale is obsolete - which leaves retailers with nowhere to come back from,” he says.
Many believe that retailers will continue to move to a more targeted approach rather than a ‘clear all’ tactic. Retailers are increasingly using data to analyse how people are shopping and changing their methods accordingly.
They can use stock levels or transactional data to help them decide what product lines will go on Sale, making discounts a more sophisticated affair.
But tradition decrees that the January Sales are still an important part of retailing. Gill says the public has been conditioned into accepting two main Sale periods a year, making it potentially dangerous for retailers not to be part of it. “Some degree of red ticketing is essential,” says Gill. “But retailers should minimise unplanned distressed stock, and perhaps offer specially bought clearance stock with a higher margin, or new season merchandise with a promotional incentive,” he says.
That is a tactic Dixons follows for the self-indulgent purchases shoppers make after Christmas. Dixons ecommerce director Jeremy Fennel says: “It is a fundamental element of our strategy to offer market-beating prices throughout the year, but we obviously drive this to the max, and given our excellent supplier relationships and buying power, we work hard to offer a selection of deals that will blow customers’ socks off.”
Promotions have changed a lot over the past few years and look set to evolve even further - 2013’s approach will no doubt bring further surprises.