The 2008 holiday season has been stressful at best for both consumers and retailers. Most of us would like to call 2008 an anomaly, but is that a safe assumption? We will only know for sure next year, but in the meantime, retailers, consumers and industry analysts are reviewing what they have learned this year in hopes that it will help for next year.
“I think this year is a singularity,” says Paula Rosenblum from RSR Research. “We are living in a shell-shocked society at the moment, and I can’t imagine this will continue.”
Consumers did flock to the stores on Black Friday 2008, but mostly to deep discounters and at those stores they were looking for unusually large markdowns. Retailers know that consumers, particularly this year, won’t blink an eye at a 20%, 25% or even 50% discounts in many cases. Those out shopping are looking for 70% off and higher – and in many cases the retailers responded…but at what cost?
The Deep Discount Debate
Many retailers have felt the pressure to offer consumers the deepest discounts this year, even if it is historically out of character for their companies. “It is the year of the deal,” says Brad Wolansky, vice president of global e-commerce for The Orvis Company. “Even merchants who traditionally aren’t promotional (such as Orvis) must pay to play this year. Serving up the ‘same old stuff’ doesn’t work, particularly on the web where customers can see the difference.”
But industry experts have mixed opinions on the subject: “Deep discounts don’t boost your brand, they just destroy your margin,” says Nikki Baird from RSR Research.
Greg Buzek, president of IHL Services, has a different take: “Retailers that are not willing to heavily discount during this season are going to see dramatic drops in same store sales. Abercrombie discounted less than others and saw their overall sales for November drop 28%. Those that discounted might not have increased sales, but they were able to weather the storm a bit better.”
“To further exacerbate the problem, it has also been challenging for retailers to compete against the prices of competitors who have filed for bankruptcy and have already publicly announced their store closures,” adds Janet Sherlock, research director at AMR Research. “While top-level revenue figures were adequate during the 2008 Thanksgiving weekend, profit contribution was likely poor for many retailers. Unfortunately, we then train the consumer to expect excessively low prices. Next year, there will likely be fewer retailers.”
Is Cyber Monday Effective?
RSR’s Rosenblum says a resounding “No!” She contends that if the industry jumped off the Cyber Monday bandwagon retailers would gain more total gross margin dollars. “Cyber Monday is a creation of the industry (or let’s say, industry trade groups), not the customer. The core assumption is that people shop while they are at work because they have bigger and better computers, and that’s just wrong, or at least dated. If retailers stopped running those silly promotions on that day…they would be primed to provide a better customer experience.”
Nevertheless, Cyber Monday exists and will likely continue to exist. To make it a successful event, retailers must first ensure that their web sites will work effectively throughout the entire Thanksgiving weekend, then they should focus on effective cross-channel retailing as an everyday practice.
“Retailers have totally underestimated the amount of online traffic on Black Friday,” says Buzek. “Sears’ site went down and Walmart attempted a major change the week of Black Friday. That’s just asking for trouble.”
That said, Buzek suggests that retailers bring Black Friday and Cyber Monday together for consumers to offer a better customer experience through effective cross-channel retailing. “The best thing would be to allow consumers to gain Black Friday pricing or Cyber Monday pricing in both channels. Particularly for Cyber Monday, the offers that are online should also be available in the stores.”
But Baird sees challenges with trying to coordinate across channels during this hyper busy weekend. “There is little cross-channel opportunity because the challenge of managing high-demand items prevents you from making online or in-store promises.”
Make Loyalty Members Feel Special
Whether or not deep discounting is helping retailers this year or any year for that matter, retailers still must focus on garnering sales from their best customers not only during the holidays but all year long and from one year to the next. “Retailers really do very little to make their loyalty shoppers feel special,” notes Baird. “How about a special gold member lounge complete with foot massage and hot chocolate? Or loyalty members only from 4-6am and 9-10pm?”
Buzek agrees. “I think most retailers are missing the boat on focusing on low margin sales only to drive traffic for (Black Friday) rather than building a longer term relationship that allows for outreach and ‘special days’ throughout the year. Retailers like Borders and Best Buy get it with their programs. I’m not sure of too many others that are taking advantage.”
Other Innovative Alternatives to Deep Discounting
Discounting on Black Friday, Cyber Monday or any other day of the year is just not an option for some retailers. Abercrombie chose to forgo discounts to maintain its brand image. Cloudveil, an outdoor apparel wholesaler and retailer, has responded similarly. “We can’t discount on our site or at our store because our products are sold through many other wholesalers and they would not appreciate being undersold by us,” says Jeff Wogoman, director of marketing at Cloudveil. Instead, Wogoman is looking at more innovative ways to sell Cloudveil products. “We are looking at developing more video content for our website and we are trying to crack the social media nut a bit more.”
Wogoman cites Nike as one retailer that has “hit the ball out of the park” with social media. “Giving a forum to runners to download information and share with others – it was genius that they pulled it off.”
Is There a Utopian Thanksgiving Weekend for Retailers?
It’s called Black Friday because it’s the weekend when most retailers traditionally move into the “Black” and it is likely to continue beyond 2008 and 2009. But the Internet, social media and mobile retailing are forcing retailers to be more reactive on the spot. “You need to evolve daily and serve the promotions and products and prices that customers are looking for,” says Orvis’ Wolansky.
AMR’s Sherlock offers up a few tips for retailers going into 2009. “Next year there will likely be fewer retailers and the retailers that remain should have learned to:
1. Buy as lean as possible
2. Keep supply chain cycles as short as possible in order to react quickly to market conditions
3. Drive value to consumers through programs, services, and experiential shopping, not just price
4. Wean customers from the constant state of deep discounting and continual promotion
Those tips plus a healthy economic recovery could bode well for retailers in 2009 and beyond.