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04.19.2014

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June 8, 2012 5:54 PM

Retail

Retail on the Wagon

Price promotions are most often described as a drug -- just its shoppers getting the high and retailers getting the addiction....

Price promotions are most often described as a drug -- just its shoppers getting the high and retailers getting the addiction.

There are some, Macy's chief financial officer Karen Hoguet among them, who see promotions as something of a necessary evil. "We bought May Co., tried to reduce the coupons day one and it was a failure," Hoguet said. "It didn't work.... People love these coupons. They love thinking they got us. They love getting the value."

That's true. The counter argument is that when prices are jacked up only so they can be cut, no one's really getting any value. Ron Johnson, chief executive officer of J.C. Penney, who has forced customers to more or less go cold turkey, has been highlighting how ineffective the firm's old pricing scheme was. Over the past 10 years, Penney's average retail prices rose to $36 from $27, but the average discount to that ticket rose to 60 percent from 38 percent. The result? Over the past decade, Penney's shoppers saw the average retail price paid per item fall to $14 from $15.

The price promotions question reaches out far beyond Macy's and Penney's (it's just irresistible to start there given that they're two of the industry's biggest players and that they're butting heads so prominently right now).

* Guess stopped playing the promotional markdown game in the mall about 15 months ago and saw traffic in its stores slip in the high single digits in the first quarter. "The price-sensitive customer who used to come in has realized that we're not in that business anymore and she's not coming into the store," said Russell Bowers, vice president and cfo, retail, at Guess.

* Kay Krill, ceo of Ann Inc., said the Ann Taylor division has cut its promotions to bolster its brand. "We definitely have become more surgical in our approach to markdowns and promotions...and we are definitely improving our gross margin rate," she said.

My guess is that more retailers will try to take this route, a return to social drinking, so to speak. It's tough way forward but one the dynamics in the market seem to be forcing. The first step toward recovery is always acknowledging there's a problem and fashion's doing that now, finally.
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