Holiday Shopping is Here, With Heavy Discounts, Whether It’s Wanted or Not

November 26, 2022  by HFBusiness Staff in Business Strategy, Industry   

There are plenty of retail brands who have been forced into leveraging their promotions as a marketing tool rather than a stock-clearing one during this holiday/sale season. Because of this, it’s harder to protect their brand value through the rest of the year when large companies were slashing their prices up to 50% before Black Friday had even started.

“We’ve been in business for 18 years, and it’s the first time ever we’ve gone to 20% [off],” said Rony Vardi, the founder of Brooklyn-based fine jewelry brand Catbird, which doesn’t have excess inventory, and until this year usually offered customers a 15% discount around the holidays.

“Every email in my inbox is like, ‘60% off,’ ‘30% off,’ ‘50% off’ … 15% just didn’t feel like it was enough.”

Too much inventory was the problem for retailers in early 2022. It was excess stock built-up from the pandemic and last year’s shipping delays and heightened demand post-COVID spending.

Inflation and consumer uncertainty around the economy are the new set of problems that are being faced by retailers and purchasers alike. These problems have dampened some spending, and the relaxing of supply-chain bottlenecks, which has left them with excess inventory at the end of the year, said Vivek Astvansh, professor of marketing and data science at Indiana University.
 

“Last year, the supply was low, and the demand was high, and this year it’s the total opposite,” Prof. Astvansh said. “There’s a huge stockpile, which companies are doing those deep discounts to get rid of.”

That mismatch has created what finance chiefs and analysts are calling “a highly promotional environment,” which has already weighed on the margins of some large retailers.

As customers get used to seeing heavier promotions sooner in the year, some companies with no serious overstock are being pushed to discount deeply to keep up with shoppers’ expectations, said Rod Sides, vice chair and leader of Deloitte’s U.S. retail and distribution practice. 

“Any discount that doesn’t have a ‘two’ in front of it probably doesn’t get anybody’s attention at the moment,” Mr. Sides said. Savvy shoppers are used to finding ways to get as much as 20% off purchases outside the holidays through online offers such as voucher codes and newsletter sign-up promotions, he added.

Jennifer Porter, chief marketing officer of furniture and homeware company Arhaus Inc., told investors this month the company is being slightly more promotional than it was around the same time last year, and has pulled its promotions forward this season in line with other retailers. 

“Looking forward, we aren’t really seeing this as a shift in our promotional strategy for a long-term basis,” Ms. Porter said. “This is more of a reaction to what’s happening in this peak holiday-sales period.”

Backpack and handbag maker Dagne Dover doesn’t have excess inventory to clear out but is still offering 25% off its products—up from 20% last year. Deepa Gandhi, the company’s founder and chief operating officer, said the company determined the size of the discount not in response to the promotional frenzy, but the cost of gaining customers online.

Those “user-acquisition” costs through advertising on some social media platforms have risen in recent years, while Apple’s changes to its mobile operating system have made it harder for advertisers to track users online, Ms. Gandhi said. The company pulled its spending on Meta Platforms Inc.’s Facebook early in the year when it didn’t seem to be paying off, she said.

Instead, the company chose to transfer some of its marketing budget over to holiday discounts, rather than ramping up online advertising, Ms. Gandhi added.

“What we are thinking about is that incremental dollar: Is it better to use it to almost guarantee an acquisition by offering money off or spend it on a Meta platform?” she said. “At this point, we’d rather just give it back to the customer—and for our loyal customers, the promotional times only increase their lifetime value.”

This information was originally reported by Katie Deighton (katie.deighton@wsj.com) at the Wall Street Journal.