Retail Round-Up

The latest edition of The Bulletin (31st Jan 2006, pp20-21) carries a story “Never Ending Store Spree”, which includes a very interesting calendar (shown here).

The article talks about how, as soon as Christmas was out of the way, retailers began stocking Easter Eggs and the like. It also goes on to talk about the rest of the year, and as you will notice from the calendar, there are year-round promotional initiatives planned for all but about three months of 2006.

Such a calendar is bound to get pinned onto kitchen fridges around the country and help condition price sensitive shoppers about the best time to make their planned purchases.

Conditioning shoppers in this way does not maximise revenue. Sure the products on sale/promotion drive foot-fall and act as loss leaders. But the initiatives also ensure that shoppers only buy when prices are at their lowest, and they will hold off making their purchases until such sales or promotions start. Other dangers associated with sales and discounting strategies include:

• Customers’ references prices are lowered;
• Subsequent promotions are not viewed as a "fair deal", making it difficult for retailers to raise prices in the future;
• A return to 'normal' prices starts to look like a price increase to the consumer;
• Reducing prices in anticipation of covering the lost revenue with additional volumes is a flawed strategy, and;

In a typical S&P1,500 company, volumes would have to rise by 18.7% to offset the impact of a 5% price cut.

It is rumoured that one particular retailer has high-profile sales every six weeks or so, because if they don’t there are no customers in their stores.

Another retailing-related story (“Wal-Mart, The Record Label” in the Financial Times, 31st January 2006, p9) also caught my eye recently. I will quote one paragraph in its entirety:

“John Fleming, Wal-Mart’s head of marketing, told analysts last year that they
should expect to see the retailer deepening its relationship with the music
industry, as it pursues an effort to broaden its customer base and to increase
sales of higher-margin goods, including clothes and electronics”

Could this be the start of a shift in strategy for Wal-Mart: a departure from their mantra of Always Low Prices. Always? Given that Wal-Mart is a company with the power to change not only its buyers share price but also the rate of inflation in the USA, this might just be something to watch.