Battalions of shoppers never buy at retail. It is almost a point of honor with them. The larger the savings, the bigger the boasting rights. A designer suit marked down three times is “a steal!” A coffee table book on remainder: “They were practically giving it away!” A store model appliance, “one little scratch, and would you believe what I got it for?”
While most people also factor in time and convenience when making purchase decisions, price remains one of the key drivers. In fact, even modest reductions can tip the scale. Face it, everybody loves a bargain. Just look at the phenomenal success of eBay, an auction Web site, where the average visit is upward of an hour. Other cyber-entrepreneurs have launched the Web equivalent of outlet stores and bargain basements. They buy surplus, irregular or closeout merchandise from retailers and manufacturers. They sell the product online at rock-bottom prices and still make a profit.
Many retailers are catching on to the enormous clearance opportunities offered by the Internet. Before, merchants that were limited by store space turned to product liquidators to get rid of discontinued or surplus stock. Now, they are beginning to retrofit their e-commerce operations with special, direct-to-consumer clearance areas. Another online merchandising strategy leverages online auctions as an alternate channel for closeout or discounted items in limited quantities. This article will explore how to optimize these below-retail market opportunities while preserving and protecting your regular brand and pricing.
Virtual Clearance Racks
If you went to a store and found sale items randomly mixed with regular inventory, you would find the system confusing at best. Without even thinking, you probably would switch into “bargain” mode — rejecting regularly priced merchandise in favor of discounted items. This is why almost all stores designate a special area for sales items. For discontinued or less-than-perfect merchandise, stores often set up a separate room, typically on the lower floor. The merchants want to make sure customers understand that clearance items are not on par with their regular merchandise, both in terms of pricing and condition, since sale items tend to be slightly store-worn as with an often-tried-on garment.
To maintain their brand and pricing integrity, enterprising e-retailers have established separate, clearly marked areas on their Web sites for closeout, clearance or overstock items. The clearance area usually merits its own tab on the main menu of the home page, such as Barnes & Noble's Bargain, Bloomingdale's B-values, Nordstrom's Sale, L.L. Bean's Sales Store and Lands' End's Overstocks.
Some multichannel merchants, such as sporting goods merchandiser Recreational Equipment Inc., took the concept a step further and created a separate Web address for their outlet stores. In fact, REI-Outlet.com merchandise — consisting of manufacturers' overstocks and closeouts — is available only online. A statement on the outlet Web site explains this exclusionary policy: “Offering these items at REI stores, through REI mail order or at our full-price, full-selection online store, REI.com, would involve special purchases, which would raise expenses and product prices.” Furthermore, while customers can apply REI dividends toward a purchase at REI-Outlet.com, the purchases themselves are “nondividendable.”
Owing to its unique function, a clearance area on a Web store must effectively communicate these differences. First of all, shoppers need to understand the nature and source of the discounted product — whether it is standard-quality, brand merchandise on sale; aggregate manufacturers' surplus or closeout stocks; or inventory that is “less than perfect” or “irregular.”
Set the shoppers' expectations from the start. Tell them up-front if the product has slight defects or irregularities. If the merchandise meets your brand standards, let them know that, too. For instance, L.L. Bean clearly labels its online sales store merchandise as “guaranteed L.L. Bean products.” In fact, this is used as a selling point: “Visit often. You'll find deals on first-quality and many in-season items every time.”
Most clearance areas share several traits; the items are priced to sell quickly, available in limited quantities and typically not restocked. Emphasize the one-time-only, “first-come, first-served” nature of these offers to communicate a sense of urgency. In its online bargain section, Barnes & Noble informs shoppers, “Bargain books, particularly publishers' overstocks and imports, are often available only in limited quantities. Please order early to avoid disappointment.”
Lands' End's Overstocks lists new merchandise twice weekly and lets visitors know when the offers will run out. Offering discounts of up to 75 percent, the site clearly informs shoppers that prices within a given style can vary due to inventory availability and that purchases are guaranteed at the price paid. Similarly, J. Crew offers a new selection in its online clearance section every Friday at noon. Being this specific is a great way to condition customers to check back weekly when the new merchandise hits.
People shopping in clearance sections expect less online help and amenities. An online discounter of name appliances, automobiles or computer hardware and software can get away with listing just the manufacturer's name, model number and any included peripherals or accessories. Shoppers are expected to do their own homework and know which product model has the attributes they need.
Other product categories such as apparel, furnishings or jewelry still require a visual aid. While you might not show every separate combination of a product, a representative image will help the decision-making process. The best online clearance areas display the original price, subsequent markdowns and the asking price — as both a dollar amount and percentage saved.
At most current clearance sites, customers must place an order before learning whether the item is available. If this occurs too many times in a row, shoppers tend to become frustrated and abandon the search. In the next iteration of e-commerce solutions, merchandise stock quantities will be available in near real time. Until then, merchants should compensate by providing as much information as they can.
For instance, when informing a B-value customer that a requested item is sold out, bloomingdales.com provides supplementary information about which sizes are available in the chosen color and which colors are available in the specified size. Catering to this market, Bloomingdale's offers opt-in B-value electronic product alerts and lets customers e-mail merchandise listings from the B-value section to a friend at no charge.
Merchants can stimulate product demand by offering a “deal of the day” or top-seller lists; search menus featuring price categories, e.g., less than $100; or savings percentiles, e.g., 25 percent off. One innovative technique is REI-Outlet.com's Bargain Sleuth service. At no charge, customers can describe by e-mail what they are looking for, and the site undertakes the search on their behalf and automatically notifies them if the desired item is available.
Auctions used to be an elitist activity, a discrete way for wealthy patrons to sell off estate heirlooms and museum-quality artwork. However, when eBay burst onto the Internet scene, it introduced the thrill of the bid to the public, and online auctions became a new hybrid mass market — sport and entertainment rolled into one. In fact, online auctions have been so popular and lucrative that they are gaining acceptance as a viable sales channel for retailers' and manufacturers' surplus product.
The appeal of high-profile auction sites, such as eBay or Amazon.com, is their draw. Auctions are the Internet's most heavily trafficked sites and enjoy the highest user retention and click-through rates. A merchant with a limited quantity of angora sweaters can post them for bid on an auction site. Their availability can be promoted from a banner ad prominently displayed on the merchant's Web store. Interested shoppers can click straight onto the bidding site to place an offer.
There is one drawback, however. The shopper has physically left the retailer's site. Auctions work because people are curious by nature. A consumer might start out looking for a particular item, say an action figure from the Star Wars series, but then might decide to check out antique watches. Online auctions are akin to wandering the crowded stalls of a sprawling exotic bazaar. Something always catches the eye or tickles the customer's fancy, but the chances of the customer returning to your site are iffy.
In the near future, online merchants will solve this problem by setting up their own auction sites. Rather than try to build this function from scratch, they will team up with established online auctioneers that will build a private label site for their exclusive use. Under this outsourcing agreement, the experienced auction site will operate and maintain the private auction on a 24/7 basis, while the retailer will retain control of the actual transaction and order fulfillment activities. The clearance section and auction site will be linked seamlessly so the bidding will appear to customers to be occurring on the merchant's site.
Advertising 'Wisely, Not Too Well'
Overstock and closeout merchandise offer unique advertising challenges. The low prices are offset by limited, quickly depleted stock and lots of turnover. Therefore, rather than concentrating on any particularly item — unless available in large amounts, advertise product categories and big savings. This is particularly effective for brand-name retailers. Just put “clearance” after the retailer's name, and people catch on fast.
If a particular product type is highlighted in the ad, showcase those selections when the visitor clicks through. For example, an online ad, “Designer sheets — up to 75 percent off,” should link to a grouping of all linen offerings at your clearance area. The same is true when advertising your participation in an online auction. The ad should link to the auction site and should last only as long as the open active bidding.
The placement of clearance-related online ads is important. The cardinal rule in promoting clearance merchandise is never to compete head-to-head with the regular brand. Avoid major portals and destinations in lieu of more targeted and product-specific sites.
Portals are the main entry points to the Web. They serve and process large populations of new users who might not be familiar with your brand or online offerings. In fact, most e-retailers report that up to 50 percent of their site traffic is comprised of first-time visitors. Naturally, you want their first online experience to be with your primary Web store; therefore, your portal ads should promote your regular brand and merchandise.
For advertising clearance site or auction opportunities, concentrate on affiliate networks, product aggregators or shopping malls with complementary product focus. These cluster sites tend to host repeat traffic, and consequently, the shoppers are savvier about e-commerce. A banner ad devoted to overstocks and closeouts should link directly to the clearance site and not to a store's home page. Experienced Web shoppers will get their bearings quickly and will know where they are on the site. These shoppers won't mistake the clearance section and its limited merchandise for the main store.
In summary, remember that your clearance area, while separated from your main brand, still reflects on you as a merchant. To encourage repeat visits and assure customer satisfaction, consider the following tips:
* Offer customers clear instructions about your return policy, warranties, service support and pricing guarantees;
* Post when and how frequently new merchandise is added;
* Make sure shoppers understand where the merchandise came from and its condition;
* Offer good search aids and well-delineated product categories;
* Always post full pricing information.
After all, everyone loves a bargain.