Analysts predict more permanent price cuts rather than regular promotions.
Retailers must take a more strategic approach to promotional activity and pricing this year to avoid affecting margins and damaging their reputation, analysts have warned.
Many operators will look at permanent price cuts, according to some industry commentators.
Mike Watkins, senior analyst at Nielsen, said: “There are parallels with what some of the major food retailers have done; instead of sporadically discounting they are being more strategic with things like the Tesco Price Drop. We will see more of this on the high street.”
Young fashion business SuperGroup’s long-term strategy of not discounting paid off over Christmas, with the company revealing like-for-like sales leaped 5.8% in the nine weeks to January 1.
The owner of the Superdry brand and Cult chain will cut prices permanently on some lines for autumn 12 as it benefits from both a drop in cotton prices and the expansion of its supply base. Price changes across the range will vary but chief executive Julian Dunkerton said chinos would drop to £45, from £55/£65.
Home shopping group N Brown is also dropping prices, passing on production cost savings. Chief executive Alan White said: “We’ll be offering customers lower prices than a year ago from the second half of the year. It will make it more attractive to customers.”
White said N Brown had sold 20% more stock on discount than last Christmas. This had affected its gross margin, which it expects to be almost one percentage point below last year over the year.
The consumer had become a “discount junkie”, White said. “Retailers need to be sharp on pricing. We need to be selling at full margin rather than discounting. We need to get back to planned promotions, unlike the past few months.”
Singer Capital Markets analyst Matthew McEachran said the industry could see more price lowering, particularly towards the end of this year as the drop in cotton prices comes into play. “Depending on strategy, you can either cling on to a bit of margin or feed it through to the consumer,” he said.
At M&S, discounting failed to prevent general merchandise sales falling 1.8% over the period.
Reporting its third quarter results for the 13 weeks to December 31, M&S warned of more discounting to come in the early part of this year, leaving analysts fearful that its non-food margins could be hit.
Commenting on pre-Christmas discounting, Seymour Pierce analyst Freddie George said: “[M&S] haemorrhaged margins in December. It will have to make cost savings elsewhere to make up for this.”
M&S chief executive Marc Bolland said it would try to offset the fall in margins with cost savings made between now and the end of its financial year, March 31.
A Christmas sales jump at Debenhams was put down to consumers liking the product rather than discounting, said its financial director Chris Woodhouse.
The retailer posted a 6.5% rise in like-for-likes, including VAT, in the five weeks to December 31, but the level of products bought on mark-down was static, Woodhouse said. “We didn’t do any more discounting than last Christmas. Our margins are unaffected.”