Can sales save the retailers?

This year there are three trends hitting the stores simultaneously. Two have become common in recent years.

We have become a nation of binge shoppers, with a temptation to all try to shop on the same few days each year when we think the prices will be keenest and when we have a holiday.

More and more people want to shop at a time of their choosing from the comfort of their own home, in a way which allows them to find the most competitive price for a good. They are choosing the internet in increasing numbers.

The third complication specific to 2008/9 is the savage downturn in the economy, undermining confidence and forcing people to keep what cash they have.

The retailers and shopping centres have strategies to handle the first two. They have responded to the wish to go shopping on special days by catering for the large numbers, spending on advertising, and changing some of the prices to create some excitement.The main stores are increasingly concentrated in large modern shopping centres where there is adequate parking, and plenty of catering alongside so people can make a half day out of their trip and combine it with a grand coffee or lunch.

The retailers understand that modern shoppers want to drive to the shopping area, park easily, have plenty of choice within and between the shops,and be able to sit down and relax over a drink. A few will still return home to find the cheapest version of what they have seen on the web, and others, especially men, will prefer not to venture to the mall in the first place, but the overall package is a good one which the majority prefer to scrolling through dozens of web pages which may give an imperfect representation of what is on offer. Some of us prefer to see and even touch the goods before buying, and like the event that shopping has become. Many see shopping as day out, something to do with friends or relatives.

Both customers and retailers understand the bizarre price dance retailers now have to lead to entice and complete the transaction. Why buy the items just before Christmas, when you expect them to be 20% cheaper in the January sale? Why then not offer a discount before Christmas, to prevent all the business being delayed until January? The stores need to attract the business when there is some need to buy. People need to buy some things before Christmas for presents and for the full enjoyment of the holiday. People also take advantage of the long Christmas break from work to buy those bigger items or special purchases that require some time to understand the range and to choose the right one. Retailers need to be there with persuasive prices when people might be in the mood and have the opportunity to shop.

But what can a retailer do to survive when there is, thanks to the authorities conduct of monetary policy and banking regulation, a massive belt tightening going on? It’s the same general rule – have the right products available at the right price in the right place, as applies in normal conditions. It is also more difficult, because there are fewer retail pounds to be attracted, so there will be more losing retailers. The general advice to retailers is simple – hold less stock as you will be selling less, buy more cheaply so you can sell more cheaply, and hold relatively more of the cheaper ranges. Make your price promotions more frequent and more dramatic to try to get people into the store, and train staff to sell other itmes once you have attracted the public through a knock out central offer.

Generating some more business in the three last days before Christmas, and at the start of the post Christmas sales, is a help, as shops appear to have done this year. Buying that marzipan which many of you have commented on clearly helped after all! The months of January, February and March will prove tougher, unless a retailers paces his or her price promotions and offers, and finds a magic touch with the stock they buy. It will not always be the cheapest line that sells. There will be scaling down that can sometimes help premium ranges. Yesterday I saw a news item to say higher priced fancy foods were selling well, probably because people wanted a cheaper treat at home instead of going to the restaurant. That is where retail is a real skill or art, requiring deep understanding of purchasing trends in a very depressed market.

Today we sympathise with the plight of Woolworths workers, facing redundancy on a big scale. There will be no governemnt handout for them. There will be more store groups going under in these conditions, which remain the cruellest I can remember. Cost cutting and care with merchandising are essential for survival. Not all will make it.

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4 Comments

  1. Mike Gill
    Posted December 27, 2008 at 9:39 am | Permalink

    Surely there has to be a substantial reduction in total retail capacity. The current discount frenzy is the retail version of last man standing. Spending power is reduced not only by reduction of borrowing but also by the need to pay down existing debt, and recovery in spending power will be damped by future tax rises

    When the surviving shops re-stock after their current currency hedges and supply contracts expire, we will presumably see inflation for imported items. Buy what you need now if you can!

  2. Michael, Islington
    Posted December 27, 2008 at 12:41 pm | Permalink

    I can see you don’t go shopping much.

    Just about all the high street retailers are stuffing their “sales” with specially bought-in seconds.

    They don’t think as much about right product, right price and right place as about there’s a lot of right mugs.

    Reply: Yes, there is always a lot of special sale merchandise, which some like. There are also genuine bargains from heavily discounted regular stock, as I have seen for my self again this year.

  3. Derek
    Posted December 27, 2008 at 2:16 pm | Permalink

    A lot of ‘sale’ stuff is brought in specially, but is not seconds it is just made to a price point. It’s what’s known in the trade as a mug’s eyeful. There are genuine cost or below cost bargains out there if you know where to look, particularly in clothing.

    There’s a big media narrative about savvy shoppers leaving it later every year. The recent Woolworths sale undermines this a bit with their initial ‘up to 50% sale’ that duped many into buying when the discount was only 10% (7.9% really when you bear in mind the VAT cut wasn’t passed on).

    Unfortunately, survival will be less down to gifted retailing and more down to how much of the estate is freehold and whether the debt can be refinanced or not. The current environment is so harsh that you can have a large market share, mopping up most of the available spend, but still be struggling to make ends meet.

    Outmoded business models are a favourite analysis for failing businesses. Take the car industry, for example, the standard line is they didn’t adapt their products to environmentally friendly models people want to buy. It’s nonsense though, if cheap car loans were still available people would still be merrily buying 4x4s. Any car manufacturer who’d decided to go over to an entirely green product range would be calling the administrators. The car industry churned out SUVs because that was what people wanted to buy. The slowdown was too fierce and the timeframe too small for them to be fairly expected to have re-invented themselves.

  4. mikestallard
    Posted December 27, 2008 at 5:24 pm | Permalink

    In the Fens, there has always been a shift in market places.
    King’s Lynn had a mediaeval market based on the old German/Russian trade through the Hanse. Then, when the Bedford Level drained part of the Fens, a brand new Market Place started off with pubs and another Parish Church. In the 1960s, the market area shifted into the new pedestrian precinct round Sainsbury’s and the new Bus Park/Railway project. Now, in the next millenium, it is shifting again to the ring road with hypermarkets of various kinds.
    I say this to reassure. The centre of Wisbech is largely charity shops, defunct Woolies, Poundland etc and some tea shops and pubs. Apart from the weekly market, it is a dead zone. The action is moving out to the ring road with the new multiplex.
    Plus ca change…..
    I am so pleased that you understand the skill and professionalism of traders of all stripes: the BBC seems to see them all as swindlers/rich people/polluters. In fact, they are the cutting edge of this economy.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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