In the dark days of the recession, retailers began cranking their promotional hype machines in overdrive, offering an increasingly loud drumbeat of “30 percent off the store”-type offers to coax cautious consumers to spend their money.
Shoppers got hooked on the deals. But now, in sunnier economic times, some major stores are trying to turn out the lights on the 24/7 discount party.
Preppy-chic clothier Ralph Lauren has slashed the number of promotions it promises to online shoppers and has made its discounts less deep. Handbag giant Michael Kors is demanding to be taken off department stores’ “friends and family” sales, worried those bonanzas blemish its brand cachet. Big-box shoe store DSW told investors last week that it is moving away from storewide sales events, instead opting for narrow, targeted deals such as a $29.95 sandal event.
Experts say the moves are something of a reckoning for an industry that has struggled during this long-running promotion-palooza.
“The pace of promotions and the impact of promotions on retailer profitability from the last several years really is not sustainable,” said Steve Barr, leader of the retail and consumer division at consultancy PwC.
It’s hardly a sure thing the tactic will succeed. J.C. Penney famously tried to get rid of discounts and coupons in 2012, when then-chief executive Ron Johnson said customers would prefer “fair and square” price tags that didn’t require them to do any arithmetic. The move was widely regarded as a disaster, and J.C. Penney eventually brought back the deals — and parted ways with Johnson. Turns out, the chain’s devotees missed the thrill of feeling as if they got a special price.
Elana Haverstick of Fairfax County is one shopper who has come to count on the discounting routine. Haverstick hit up Tanger Outlets National Harbor in Prince George’s County last week with her 5- and 13-year-old sons, scooping up back-to-school gear.
If her go-to stores were to start pulling back on coupons and discounts, “I would probably buy less,” Haverstick said.
Tween-centric retailer Justice — a mecca of sequin-studded skirts and T-shirts festooned with emoji — offered one of the more extreme examples of how intense the promotion game had become in recent years. In 2014 and early 2015, the chain flogged offers such as “40 percent off, plus an additional 20 percent off” for 400 straight days.
The store found itself trapped in a vicious cycle.
“The first time you do it, it works. You look like a hero” because of the sales bump, Brian Lynch, Justice’s chief executive, said to investors earlier this year. But eventually, he added, it “doesn’t quite work the same.”
In other words, it becomes hard to create any sense of urgency among shoppers when they come to realize the deals are nearly always available.
Consumers apparently became skeptical of Justice’s price tags. Last year, the brand’s parent company, Ascena Retail Group, agreed to pay out $50.8 million as part of a settlement in a class-action lawsuit alleging the store’s “40 percent off” deals were misleading, because, complainants said, those were effectively everyday prices. (Ascena denies wrongdoing.)
These days, Justice has pledged to do away with storewide sales events, instead opting for discounts on specific items such as workout clothes. It has dropped its initial prices but expects to make more money per garment because it has pumped the brakes on promotions.
On paper, Justice’s sales are suffering. In the most recent quarter, the brand posted an 11 percent decline in comparable sales, a measure of sales online and at stores open more than a year. But the chain says that’s all part of the plan. It says it is swallowing a bitter pill now that will make for a healthier business down the road.
Early indications suggest those efforts are working: The operating loss for the Justice brand was $8.8 million in the latest quarter, an improvement from the $17.5 million loss posted in the same quarter last year.
Experts say it’s not just a steadier economy that is pushing retailers to consider easing up on promotions. Online shopping is growing explosively, and shipping costs mean that those purchases tend to be less profitable ones for retailers, said Jeff Simpson, managing director of the retail practice at Deloitte.
To absorb that growing pressure on profitability, Simpson said, “something’s got to give.”
There are other cultural changes, too: Retailers used to set the pace of a shopping season, creating a starting-gun effect with a big sales event. Now, though, shoppers run the show, armed with price-checking apps and inspiration from social media. It’s hard for a retailer to stand out by promotion alone.
“Promotions are like city buses these days,” said Joel Bines, managing director of the retail practice at consultancy AlixPartners. “If you miss one, there’s going to be another one that looks just like it coming down the road behind it.”
PVH, the parent company of fashion brands Calvin Klein and Tommy Hilfiger, told investors last month it will “focus less on promotions” on its websites. Women’s specialty chain Chico’s said its comparable sales slipped 5.1 percent this quarter, largely because it reduced promotions. (Meanwhile, its merchandise margins improved, because it was selling goods at a higher price.)
Other brands are trying to simply think differently about what constitutes an effective deal. Victoria’s Secret is ditching the $10-off direct-mail coupons it used to lean on, instead focusing on promotions that encourage shoppers to try workout attire or a beauty product — something they might not typically buy from a store known for its bras and panties.
There are plenty of retailers that remain fairly aggressive with promotions. Outlet store J.Crew Factory, for example, sent an email blast last week promising 50 percent off the entire store through Labor Day. Gap offered 35 percent off all online purchases last Wednesday.
And many chains are looking to harness shoppers’ purchasing data to give more customized promotions that cater to their preferences. Those efforts, though, are in relatively nascent stages.
With that as a backdrop, it might not prove to be easy going for retailers cutting back on promotions.
“They really have to settle in for a long, tough grind,” Bines said.