Retailers Save Discounts for Bargain Hunters
With the holiday frenzy over, shoppers like these at Nordstrom Rack in Schaumburg, Ill., looked for after-Christmas bargains Friday. But discounts don’t move the needle for all shoppers. NAM Y. HUH/ASSOCIATED PRESS
There’s a growing gap in retailing between those who get discounts and those who don’t. Call it the discount divide.
After years of sending out email blasts offering all shoppers steep discounts, retailers such as Stage Stores Inc., which runs 880 department stores, including the Bealls and Goody’s chains, are starting to pare back the promotions by showing them only to customers who respond to price reductions.
At the other end of the spectrum, Stage Stores has shoppers who are more interested in nabbing the newest styles in shoes and handbags than in sniffing out bargains. Stage Stores rarely advertises clearance sales to them.
“Discounting is here to stay; you just have to be smart about it if you still want to make money,” said Steven Lawrence, the company’s chief merchandising officer and a former merchandising executive at J.C. Penney Co.
After years of collecting data, retailers have gotten savvier about how to use it.
They are trying to maximize full-price sales to fatten profit margins, while using discounts to clear aging inventory and persuade reluctant shoppers to part with their cash.
A fifth of online shoppers are considered true “discount junkies,” people who make purchases only when plied with discounts, according to new data from AgilOne Inc., which works with 150 retailers to analyze customers’ purchases and predict their behavior. About 15% of shoppers generally pay full price for items and don’t bother searching for sales.
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“Smart retailers understand discounting only moves the needle for a portion of their customers,” said Omer Artun, chief executive of AgilOne and a former marketing executive at Best Buy Co.
“You don’t want to offer discounts to full-price shoppers, because over time your profit margins will erode,” he said.
Shoe brand Donald J Pliner, which is sold online, in department stores and through an eponymous six-store chain, divides its customers into three types based on their previous shopping behavior: Discount shoppers who buy clearance items and last season’s styles once they are priced at more than 25% off; full-price shoppers who rarely buy clearance items; and customers who fall somewhere in between.
The divisions dictate to whom the brand touts clearance sales and which customers receive catalogs showcasing new full-price products.
Since the recession, store windows have been full of big 40%-off signs, and email inboxes have been crammed with discount offers.
Two years ago, J.C. Penney was crippled after former CEO Ron Johnson tried to eliminate discounts entirely.
The retailer reinstated the deals immediately after Mr. Johnson left.
Department stores including Nordstrom Inc. and Hudson Bay Co. ’s Saks Fifth Avenue have built separate outlet centers filled with the previous season’s wares or cheaper versions of their clothing made for those who are more concerned about prices.
The strategy benefits shoppers like 64-year-old Joseph Porter, who does most of his buying online and says he pulls out his wallet only if he finds a good discount. “You would have to be crazy to pay full price these days,” said Mr. Porter, a retired writer in St. Louis. “There’s always some discount available, but you do have to do a check around the Web to make sure they’re not trying to pull one over on you.”
Offering selective discounts isn’t without challenges. Stores risk alerting consumers that they are using shoppers’ personal information, and that they know everything from what time of day customers open email to what is the best shoe size to whether the word “sale” causes a customer to click on a link.
“Surgical discounts that give an advantage to certain people would take away our credibility,” said Farooq Kathwari, CEO of furniture retailer Ethan Allen Interiors Inc., which offers a single price on each product at its 300 U.S. design centers.
Xavier Barrera, who works in commercial banking in San Jose, Calif., said he and his partner, a doctor in the San Francisco Bay Area, couldn’t be more different when it comes to discount shopping.
Mr. Barrera checks flash- sale sites, scours the Web for deals and almost always buys items on sale, while his partner tends to pay full price for purchases.
On a recent trip to Nordstrom, Mr. Barrera said, his partner bought five shirts at around $110 each, even though the salesperson said that if he waited a week for the store’s annual sale, he could buy the same clothes at reduced prices.
“I remember rolling my eyes, because I knew he wouldn’t want to wait for the discount like I would,” Mr. Barrera said. ”He doesn’t have the luxury of time.”
Chris Orton, chief marketing officer of sports website Fanatics.com and former president of Orbitz.com, said retailers will continue to parlay the data they have to get the most out of shoppers.
“At this point next year, there won’t be two identical emails going out to customers,” Mr. Orton said.
