Not surprisingly in this tough trading climate, the Sale has become more commonplace.

The number of retailers doing this by default, as opposed to by design, has grown and this reflects just how difficult trading has become. This is particularly a feature of fashion markets. When demand is weak and stock doesn’t move, managements will often feel they have no other option. But do unplanned Sales really work?

The answer is sometimes, and to some extent. First, the Sale is often just a zero-sum game that may deliver a very short-term gain for the first movers, but how much more product is actually shifted?

The other downside is the risk of damaging a brand. A retail model based on a promotional strategy will have built-in economics to accommodate reductions and an ongoing communications programme designed to manage customer expectations accordingly.

The default-driven promotional strategy is likely to erode margins by encouraging customers to buy only on markdown. Weaning shoppers off a diet of frequent Sales is extremely difficult.

As summer gives way to autumn and the run-up to Christmas, the number and frequency of Sales will not be just a key barometer of retail health, it will also start
to shed some light on the key issue of selling price inflation and the fallout from the adjustment in the value of sterling.

The question is: to what extent will the consumer buy higher-priced fashion after nearly 10 years of progressive reductions in prices? Clearly, raising prices is one thing – shifting sufficient product at those higher prices may well be another.

Pricing is clearly going to be a much bigger issue than has been the case for many years. The strength of sterling allowed retailers to buy product at lower prices. Some of the benefit drove profit growth and some was passed on to customers in the shape of lower prices.

This created a virtuous circle – lower prices driving progressively higher sales volumes with more items bought each year over the period. This golden age of highly favourable market dynamics has come to end.

Product is costing more from suppliers, partly for exchange rate reasons but also reflecting growing inflation in hitherto very cheap Far Eastern economies. In this trading climate few retailers are in a position to add more value in order to make price increases seem more acceptable. However, there does appear to be a widely held view in the trade that reasonably chunky selling price rises can be passed on to customers.

To what extent will retailers be able to protect their margins in the future? It’s still early days in the trade’s attempt to reintroduce selling price inflation but the number, extent and frequency of Sales over the next four months or so will give a very good indication of whether the customer is wearing it.

  • Richard Hyman strategic retail adviser to Deloitte