Retailers Are Shooting Themselves in the Foot With Holiday Discounts - eMarketer
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Retailers Are Shooting Themselves in the Foot With Holiday Discounts

Consumers lulled into discounting-addiction spiral

December 21, 2016 | Retail & Ecommerce

It looks like retailers are chasing themselves down the rabbit hole in the race to entice consumers. Proffering 50%-off discounts or buy-one-get-one free offers are spoiling consumers—more than half of this year’s holiday online orders to date were made with some sort of promotion thrown in.

That’s up from 36% over the same period last year, according to retail analytics firm Dynamic Action, which studied $3 billion of online purchases made with US retailers. Findings showed the number of online orders, which included some type of discount or promotion applied, more than doubled from a year earlier in the time period November 1 to December 18.

In fact, online purchases including some incentives ranged from 51% to 86% of daily orders during the studied timeframe. In 2015 by comparison, the percentage of daily orders placed using a promotion ranged from 12% to 73%.

“Retailers can't get through the clutter of email inbox and social media feeds without having the attention-grabbing promotions,” said Sarah Engel, senior vice president of global marketing at Dynamic Action. “They keep pulling that promotional lever. Consumers begin to expect a deal. Retailers are all chasing themselves down this path. They get into the discounting-addiction spiral.”

Dynamic Action’s latest study doesn't track whether the level of discounts retailers have given this holiday season is deeper than prior years. The impact on retailers’ profit would also depend on whether promotions and discounts are planned in advance and already budgeted, or whether the trend is in desperate response to faltering demand.

“If the customer is used to waiting for a sale or buying a product at a discount, that becomes the new value of what your product is worth in the shopper’s mind,” Engel said. “Deep discounts and excessive promotions are an addiction that retailers will have to wean themselves off of in order to survive and thrive in the year ahead.”

Retailers aren't oblivious to the dilemma they put themselves in. Those such as luxury label Michael Kors, for one, have taken steps to limit the selling of their inventory to wholesale channels including department stores, so they can focus on selling more products at regular prices and hold back on discounts.

“We believe that the North America retail environment remains highly promotional, which is impacting the long-term brand equity of Michael Kors, ” Michael Kors chairman and CEO John Idol said on a call in June, adding the move is expected to lead to a “meaningful decrease” in the company’s wholesale net sales in fiscal 2017. “We believe that it's the right strategy for the overall health of our business long-term as we protect our margins and brand equity.”

—Andria Cheng

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