Hooked on discounts

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Hooked on discounts
Hooked on discounts
Sales on Black Friday were relatively flat over last year, but the holiday weekend beat expectations, with sales of $45 billion, thanks to an increase from sales on Thanksgiving, according to figures from the National Retail Federation.

“It wasn't Black Friday that was the big shopping deal this year; [retailers] started promoting deals all week, even the weekend before,” says Nikoleta Panteva, retail analyst at consulting firm IBISWorld. The pace continued throughout the holiday season, with e-commerce leading the brick-and-mortar retailers into more discounts, she says.

“The fact that deals are available online is a huge, huge driver,” Panteva adds.

The retailers say the numbers speak for themselves. According to MasterCard SpendingPulse, Americans spent $36.4 billion online during the period of November through Christmas Eve, a 15.4% growth rate over the 2009 holiday season. More significantly, McNamara says this is real growth, not due to easy comparisons to a depressed year-ago period, as in some brick-and-mortar sectors.

E-commerce is fullfulling its potential, explains McNamara, who notes it racked up 17% to 18% of retail market share during the holiday season.

“It's almost like going back to the future,” he adds. “You're seeing some of the realization of the dreams of the late ‘90s.”

Shoppers did respond to each of the holiday promotions: comScore data shows online sales on Free Shipping Day were up 61% over the year before, Thanksgiving sales were up 28% and Cyber Monday was up 16%.

‘Sell it or eat it'

Some observers fear a backlash against the barrage of one-day sales, buy-one-get-one and other promotional offers retailers tried.

They argue retailers are training consumers to hold off on purchases until they see sharp discounts, and are damaging profit margins.

“E-commerce [merchants] have been very successful. They've created a real problem for the brick-and-mortar stores,” says StrategyOne's Honan.

In a poll taken in early December, StrategyOne found 69% of shoppers were still waiting to find better deals on holiday gifts.

“It's a game of chicken,” says Eric Karson, associate professor at the Villanova School of Business.

The shoppers know the retailer will usually cave in, he says, because if the inventory doesn't sell by December 25, it will get marked down for clearance the day after.

“The retailer is going to blink,” Karson adds. “It's sell it or eat it.”

Shoppers are much savvier now, and are using their pricing power, say experts. The International Council of Shopping Centers found total retail receipts rose  0.5% during the week of the Black Friday sales, then dropped 2.1% the week after, once the sales were over.

“The retailers, by discounting so aggressively so early on, are playing into consumers' hands and consumers are saying, ‘We're not going to fall for this so early on in this season,'” says Honan. “What consumers are saying is there is discount fatigue.”

StrategyOne's survey found more than half of holiday shoppers had held back on buying something in early December because they didn't like the price.

“The whole concept of the deal is it has to be exceptional,” says David Mamane, president and CEO of online jeweler MyJewelryBox.com. “Is it exceptional if it's every week?”

Now that shoppers are trained to seek out the big sales, they will shop on those big events and ignore others, he adds.

Mamane experienced that phenomenon this past holiday season, when MSN offered his company an attractive rate on an advertising package as a test on the Friday before Black Friday. He decided to run an early Black Friday promotion, but the deals did “terribly.” Exactly a week later, the company set a one-day sales record with the exact same items, beating the previous sales record by 25%.

“It just made us understand a little bit more what Black Friday is,” he says. Shoppers just weren't tuned into those deals a week earlier, he adds.

“I think customers are much smarter than retailers give them credit for,” explains Mamane. “There's so much nonsense and BS out there, with people saying 50% off, 60% off and 70% off. If everybody was doing that, nobody would be in business.”

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