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Drapers investigates: Is the tide turning on discounting?

Discounting image for web

Drapers looks into claims that retailers are beginning to reduce their reliance on heavy discounting.

Last summer, Drapers launched a nationwide survey on discounting in the UK’s fashion and footwear industry. A perfect storm of challenges, including the new national living wage and looming Brexit vote, had pushed concerns over the race to the bottom on price to the top of the retail agenda. Half of respondents (49%) felt discounting was damaging the high street. They said prices were being slashed too often, and for the wrong reasons.

One year on, our second discounting survey sought to uncover what, if anything, has changed. Over the past few months, a wave of high street names have distanced themselves from discounting, claiming instead to be directing their energies into full-price sales. In April, Debenhams boss Sergio Bucher admitted promotions at the department store were “too frequent” and promised to introduce fewer, but better and more targeted, offers. In June, Matalan pointed to a focus on full-price product, coupled with a tighter buy, as the reasons behind a jump in full-year EBITDA. And shortly before he left New Look in September, former chief executive Anders Kristiansen outlined the retailer’s plans to reduce its reliance on discounting in an interview with Drapers.

Big brands are also reconsidering their promotional strategies. Ralph Lauren, Coach and Michael Kors have all said they are keeping a tighter rein on discounting, including offering less inventory to wholesale partners that are regularly on Sale.

All the evidence shows that retailers aren’t moving away from discounting

Richard Hyman, retail analyst

But has there really been a shift in the way brands and retailers approach discounting? Or are fashion businesses still relying on lower prices to drive demand? Fashion retailers seem to be increasingly vocal about the need to focus on full-price sales to improve margins. Some, such as Jigsaw, Fat Face and Next, are well known for taking a stand against discounting. However, the high street is still awash with Sale signs. Even some of the most established players are feeling the pinch – aggressive discounting ate into margins at H&M, after the retailer slashed prices to clear excess inventory over the summer.

“All the evidence shows that retailers aren’t moving away from discounting,” argues independent retail analyst Richard Hyman. “There are too many mouths to feed out there, and there are too many companies. It’s a bit of a vicious circle – because there are too many mouths to feed, demand appears weak, and because it appears weak, retailers need to shout more. They’re mainly doing this through promotional discounts. But by doing so, they help to perpetuate the weak demand.”

Just over half (55%) of respondents to Drapers’ second discounting survey, which ran online from 5 September to 5 October, said they had not noticed a significant decrease in the levels of discounting from other retailers or brands over the last year. Most (84%) felt the industry is not doing enough to tackle discounting and half (52%) said that the current approach taken within their business was not sustainable. However, more than half (55%) did not expect their discounts to become deeper this year.

We need to go back to an ‘end of season’ mentality, where the consumer may buy less volume, but at full price

Brand owner

Barely a week has gone by since the referendum in June last year without Brexit dominating the headlines. However, 57% of respondents to this year’s survey said economic uncertainty following Brexit had not increased pressure to discount and that their reasons for offering promotions – to keep up with competitors and in response to customer demand – had not changed over the last year.

“Black Friday, Cyber Monday, sign-up offers, back-to-school discounts, new season, mid-season, end of season, pre-season – the list of discounts is endless, but the brands doing the most discounting seem to have also increased their RRP [recommended retail price] significantly,” said one brand owner. “We need to go back to an ‘end of season’ mentality, where the consumer may buy less volume, but at full price.”

The owner of one independent agreed: “There are still too many outlets selling exactly the same products, where the only point of difference is price. The industry should be trying to change the mindset of the customer. That, in turn, means changing their own and I see no evidence of that.”

Others pointed to longer discounting periods, starting earlier each season. Sales aggregator website Love the Sales works with more than 600 brands and retailers to grant shoppers access to Sale offers in one place. The brands and retailers it works with carried more discounts over from August’s summer Sales into September this year than last – from August to September 2016, the volume of products on Sale dropped by 18%, but this year the volume dropped by just 2%.

“We always see an increase [in the volume of products on Sale] around the middle of June and at the end of summer 2016 we saw a dip in the volume of discounted products, as we usually do every year. We didn’t see that in 2017,” says Love the Sales founder Stuart McClure. He argues that retailers are maintaining discounts to encourage consumer spending.

With autumn temperatures constantly fluctuating, and despite it still being relatively early in the new season, promotions have already started to appear on some autumn stock. Over the past few weeks, shoppers could opt for 30% off autumn/winter product at River Island, 20% off new-season knitwear at Debenhams and up to 50% off at Topshop, Whistles and Warehouse, as they all ran mid-season Sales. It was a similar story in January, when large multiples and etailers ran discounts on product that had only recently landed in stores.

Menswear retailer Moss Bros opted not to run mid-season Sales last year, but re-introduced them during the first half of this year.

Chief executive Brian Brick explains: “Generally, we do have a mid-season Sale. We held one in the first weekend of October [this year] because we bought transitional ranges in June and needed to clear out the residue of those products and bring new ones in.

“Everyone has their reasons for holding mid-season Sales, whether it is to shift stock or, sometimes, when trading is tough. We use them to clear out the residue of older lines, allowing us to introduce newness into stores.”

Although there were concerns about high levels of discounting in the fashion industry among the respondents to Drapers’ 2017 survey, some stressed they had hit on a successful strategy and had been able to rein in their promotions.

“We’re buying less stock, so when it has gone, it’s gone,” said the chief executive of one womenswear chain, who expects to cut the number of days it is on Sale by 10 this year, compared with 2016. “We’re not frightened about a fall in sales. We’re happy about the improved margin.”

The focus for us is on full margin and educating customers

Independent store owner

The owner of one women’s and men’s wear independent said that, although he felt there had been more discounting from brands and retailers over the past 12 months, his own business has been taking a long-term view, reconsidering its promotional strategy over several years: “We’ve been reducing the weeks we are in Sale and tightening up promotions every year for the last five to six years. We only do mid-season promotions when the brand itself is being discounted on its own site. For example, we don’t go on Sale until early January but in mid-December we will do a promotion on brands that have started to discount online, to drive footfall. Of the 70 or so brands we stock, we do this with three or four.

“The focus for us is on full margin and educating customers, so that they don’t expect to be able to buy everything in the Sale.”

A confident Primark said last month that it had been able to avoid heavy discounting over the summer as a result of trend-led, “fun” products within its ranges, including merchandise from blockbuster Beauty and the Beast.

Product has been equally important at Shop Direct, which outgoing chief executive Alex Baldock said has been focusing on price and data to avoid the “discounting epidemic”: “Core to our proposition is bringing in top brands in reach of our shoppers. We need to be competitively priced, but we can make products affordable through our credit model, so it should make us resilient to discounting. We’ve been using our data and analytics to become more scientific about our pricing. Sales are there to shift excess stock, not to drive traffic.”

But it remains challenging for some retailers to wean themselves off the discounting drug, given the level of competition in the market.

“We have historically been promotional all year and need to drive full-price sales, with promotions focused at [certain] times throughout the year,” explained the omnichannel director of one high street multiple. “Better inventory management means we don’t need to discount as much, but our full-price offering doesn’t resonate with consumers when our competitors are discounting.”

There is a long way to go before the fashion industry cracks the discounting problem. Discounting is not inherently bad: it is a useful tool for clearing excess stock and some, particularly the more agile pureplays, are able to build regular promotions into their strategies. The problems come when customers begin to expect and wait for discounts. Plans from big high street names to focus on full-prices sales are a step in the right direction, but it remains to be seen if they can stick to their guns over the coming months.

 

 

The retailer’s view

Peter Williams, founder and CEO of Jack Wills, talks about reducing discounting at the retailer

“When I came back to the business two years ago [Williams returned to the helm in August 2015], I was disappointed by the level of discounting that had happened in my absence – it was more than we’d ever done historically. It’s not an overnight process, but since then we’ve been reducing the amount of discounting we do. Part of the problem is that there is so much stuff for people to buy and so much of that stuff is of relatively little value. We’ve focused on making good-quality product, from high-quality fabrics, with an ethical, open supply chain. There have been fewer discounts, and when we do have them, they’re not as deep.

”Obviously financially, it’s not good to discount excessively but fundamentally it is about the bond of trust you have with your consumer. By definition, your best customer is the one who pays full price and you betray that trust if something they’ve bought is half price the following week. Of course, that’s the nature of the beast in traditional Sale time, but at the end of the season customers know there will be less choice and what’s left will be fragmented. If it’s good, people will buy at full price.” 

 

 

The analyst’s view:

Katie Smith, senior analyst at retail data specialist Edited, observed discounting in the UK market based on 88 online retailers

”The rate of discounting at online retailers has slowed. Learning from past mistakes, the retailers have been cautious in discounting ahead of the festive season. As a result, they decreased the number of products discounted in September by 22% year on year, and reduced product newness. However, consumers didn’t buy in. Instead, a 17.4% decrease in the number of September sell-outs suggests consumers are anticipating reductions they’ve learned in the last few years will be coming their way.

“The premium market discounts more aggressively. While mass market retailers average 20%-30% for initial discounts on half of their offerings, in September this year, 94% of premium products [that were on offer] were discounted by 30%-40%.

“The UK online market had 7.3% fewer new arrivals in September 2017 versus September 2016. Mass-market newness was reduced by 0.6% this September, while premium retailers increased their new arrivals by 20.7%. This puts premium retailers into a riskier position of having too much product, which would force them to further deepen the discounts to clear slow-moving stock towards the end of the year.”

 

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