Following a survey of Drapers readers, we examine what compels retailers and brands to discount, the impact it has and how to control it.
In April we published an article on the state of the fashion industry (Fashion industry at “crisis” point, Drapers, April 8), which looked at the perfect storm of challenges facing retailers and brands – from the new national living wage to the slowing economy, unseasonable weather, concerns over a possible Brexit, increasing levels of discounting and changing consumer behaviour. It quickly became clear that, for our readers, one of these issues stood out above the rest: the vicious circle of discounting.
So we launched an online survey, open to multiple and independent fashion retailers and brands, to give us a better understanding of what is driving the discounting culture and possible solutions. Some of the findings are as you would expect – for example, 41.9% of respondents go on Sale twice a year, which tallies with the traditional end-of-season stock-clearance cycle. But we also found 41.4% go on Sale four or more times a year.
Interestingly, when asked for the main reason they felt compelled to discount, 32.2% said it was to keep up with competitors, while 20.1% said it was in response to demand from consumers, and 19.6% said it was because they have stock to clear. There is a sense discounting is spiralling out of control because it is being driven by the wrong motives.
We believe the solution is for the industry to pull together and take a more considered approach to discounting. As Deloitte’s Jason Gordon outlines below, if you plan most of your discounting well in advance and make sure it has a clear purpose, you will find your bottom line vastly improves.
Here are the results:
Survey responses: Your views on discounting
- “The amount of discounting high street and niche brands are now doing is devaluing the whole marketplace, as customers have become educated to just wait for the Sale/promotions.”
- “Discounts are a successful way of continuing interest. By offering exclusive discounts, we encourage people to follow us on social media and sign up to our newsletters. They give us an excuse to reach out to customers.”
- “We find that even when we are in Sale, our full priced items are more popular. Real boutique shoppers want something new not something that didn’t work for some reason.”
- “Retailers should only discount old out-of-season lines, not current trends. Otherwise it reduces demand and damages the high street.”
- “Traditional retailers would dearly love to hold on to the old school margins and ways of operating. But consumers and new retail operators are embracing both the technology and the mindset of less greed and more give.”
- “You cannot control this situation. The growth of Amazon is going to continue and further alter the purchasing behaviour of consumers.”
- “Discounting is a good way to clear stock, but chains do force independents to follow suit as customers expect it and often ask if we have a Sale. Therefore this does damage the high street and conveys a negative message that maybe products were overpriced in the first place.”
- “It is part and parcel of retail, however, it should not hide our buying mistakes or our inability to understand what the customers want. If we buy right and react promptly then discounting will be well managed.”
We asked respondents whether they planned to do more, less or the same amount of discounting this year as last year. Most said they would stick to a similar level or do less. However, when asked to estimate for how many days they were on Sale last year and for how many they expect to be on Sale this year, the answers were, respectively, 76 and 78 days on average. In other words, retailers and brands expect to be on Sale for longer this year, indicating a gap between their preferred strategies and reality.
|What is your company’s discounting strategy in detail?|
|Does your website have a constant Sale tab or section?||47.5%||49.0%||3.4%|
|Does your store have a constant Sale area?||34.8%||60.6%||4.5%|
|Do you discount or red pen products as you go if trade is slow?||42.7%||52.8%||4.5%|
|Do you run targeted promotions in between Sale periods, e.g. 20% off knitwear?||54.5%||44.0%||1.5%|
|How about channel-specific promotions, so either online or in store?||42.6%||51.8%||5.6%|
|Do you run flash Sales/promotions for a short time period, e.g. for one day only?||44.1%||52.5%||3.5%|
|Do you offer discounts through affiliates, e.g. 10% off to NUS members?||38.0%||59.0%||3.0%|
Survey responses: Your 2016 discounting strategy
- “Over the last few years we have had to run promotions and mid-season Sales simply for cashflow purposes. However, we have consciously made a decision this year to only have the two seasonal Sales to help margin.
- “We will be more selective in which items are reduced rather than applying across-the-board discounts.
- “This season has been bad, so if we need to, we will do more [discounting]. But we’re trying not to.
- “We will retain the existing strategy of targeted promotions rather than full Sales to protect the brand and clear excess stock. It is critical for us to not train the consumer to wait for any promotional activity.
- “We have a formula that works: any product not achieving a 60% sell-through after being on the shelves for 90 days gets reduced.
- “We have bought the stock, have bills to pay and therefore need to stimulate sluggish trade if we are to survive.
- “We will do more in terms of frequency but less in terms of depth of discounting.”
- “We have cut back our buy so we carry less forward stock. We realised that in the past years we were chasing sales with a low GPM [gross profit margin], which was not only exhausting but was devaluing our business and the wider perception our customers had of the products.”
- “Our strategy needed to change. In the past we have offered two blanket Sales each year combined with targeted discounting mid-season. The blanket Sales is what will change going forward: we ended up with products on Sale that didn’t need to be.”
What compels you to discount?
Many respondents said they felt compelled to discount to keep up with competitors, clear excess stock and meet customer demand. But in the comments section, some people argued that they do not feel compelled to discount at all: they hold traditional end-of-season Sales to clear stock, which is simply part of retailing.
Survey responses: How to solve the problem
We asked you, how can we move away from this growing reliance on blanket discounting?
- “Multiple high street retailers should collaborate more and agree a Sale/mid-season Sale calendar that we all sign up to, so we don’t have to discount on an ad hoc basis.”
- “We should go back to the true seasons. Suppliers and wholesale customers insist on having spring/summer available for January when in reality we are still in winter mode, and when we get to July when summer begins the stock is on Sale.”
- “Clear laws should be passed to restrict when retailers can go on Sale, as in Europe.”
- “First, discounting periods should go back to what they used to be: in March you discount winter, in September you discount summer. Second, we should look into continental-style mark-down periods. It will force all of us to buy less, curb waste and reduce unnecessary consumption.”
- “Introduce more effective loyalty programmes.”
- “Discourage brands from over-stocking larger stores and from agreeing SOR [sale or return] deals. This will reduce surplus stock in stores and thus the perceived need to play around with price.”
- “Tightened restrictions on Sale pricing. Many retailers don’t even adhere to the current rules and will put new stock on Sale as soon as it comes into the store.”
Jason Gordon, analytics lead for consumer business at Deloitte
Discounting is a fact of life. Until every retailer starts buying completely perfect ranges, there is always going to be discounting and there is no such the thing as a perfect range. The question is: what is the right amount?
Discounting becomes dangerous when there is no clear purpose or strategy, where it is reactive and applied in an unscientific way. This is usually caused by poor planning. If you’re a retailer and budgeting for next year, you can’t ever plan for numbers to go down, so you plan for a 5% or 10% uplift and buy to that. But your numbers don’t go up, so you’re overstocked and immediately you reach for the discounting lever.
And then, if you’re looking at like for like, you think, I held a massive promotion last year so do I need to have one this year? The discounts get broader and less specific.
Retailers in this situation are failing to address the specific issue: if you’re trying to clear stock, a broad 20% off everything Sale just means you’re selling your best product for less money. Customers don’t know what should be full price. How much margin has been thrown away?
Good uses of discounting is where it is deliberate, to drive footfall within a certain period or clear underperforming merchandise. It is very specific and unemotional, and a significant proportion is planned in advance. There is pragmatic discounting, when trading is not working out as expected and you need to give it a short term boost, and there’s end of season Sales for stock you need to liquidate.
When it’s done well it can be incredibly positive in terms of customer perception, brand image and commercial performance. Pick the right products to discount and discount them at the right level.
Drapers ran the survey online between May 6 and June 1. There were 332 respondents in total from retailers and brands.
If you would like to share your views on discounting, email firstname.lastname@example.org