US Retailers Going off the Discount Deep-End

Many US retailers are finding that they have shot themselves in the foot by offering steep discounts in order to entice. It remains to be seen what effect this race to the bottom will have on the recovering economy.

Many retailers offered discounts of up to 50% off, or buy one get one free, on vast swaths of their inventory. The retail tracking firm Dynamic Action studied $3 billion worth on online transactions and found that the number of sales that involved a sale more than doubled over the same period in 2015.

In fact, online sales and competition for them may be one of the primary drivers for the steep discounts that retailers offered in the competition for customers. Some of the daily discounts for online sales got as high as 86%. There is a worry that the expansion of the online marketplace has created a situation where competition has gotten too great for retailers to make the kind of profits they have come to depend on in the holiday season.

Another result of the enhanced competition is rising consumer expectations. Because there are so many choices consumers are starting to expect discounts and deals as the baseline for even considering making a purchasing decision. Some analysts are comparing this behavior to an addiction, with customers waiting to make a purchase until they see the item they are looking for show up in their inbox on sale, a mere click.

The industry is not unaware of these issues however, many luxury brands are limiting their wholesale orders as well as their shipments to department stores and discount overstock retailers. The hope is that by reducing the amount of stock they introduce into the market they can help control the price and keep them higher to protect their distribution network.

It remains to be seen how the new world of e-commerce will affect consumer shopping behavior and retails practices. Until then it will be up to the industry to respond and adopt to the new world it finds itself in.

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