For the purposes of the white paper, the RTT considered a broad definition of the topic area including;
- Sales, including clearance, end of year and mid season;
- Special or seasonal discounts or markdowns;
- Promotions, such as buy one, get one free; two-for-ones; on-line/e-mail vouchers etc.
Traditionally, 'end of season' sales were the way in which retailers disposed of surplus stock at regular, pre-determined times during the trading year; primarily in January and at the end of the summer. These sale times were well known by consumers as part of the shopping calendar and people understood that outside these regular sale times they would pay full price. It seemed to be a system that worked well for many years and suited both retailers and consumers.
However, the definition of sale is now thoroughly 'blurred'. As Nick Bubb of Pali International observed: "The concept of more regular and varied types of sale offer was originally brought from the US, where promotions such as '25 percent off for three days' drove business." This then became prevalent in the department store and furniture sectors in the UK.
A huge variety of incentives are now commonplace across the nation and have fundamentally changed the retail canvas. The reasons for sales/discounting may now include one or any combination of:
- Generating footfall to stimulate interest and product exposure;
- Increasing top-line sales;
- Cash generation (e.g. to cover financing shortfalls or peak cash requirements such as quarterly rental or VAT payments);
- Driving market share;
- Targeting or engaging with new/different customer segments;
- Clearing stock;
- Reacting to/anticipating competitor activity;
- Being an integral and planned part of business strategy;
- Supporting a brand proposition built around price-based positioning (e.g. a regular 'always on sale' public face, which is particularly prevalent in certain furniture, carpet and fashion retailers).
The RTT agreed that sales activities have now moved from a rigid, well-understood, pre-determined approach to one that is multi-faceted and complex. The balance has tipped towards something that is often tactical and also more reactive, as one retailer responds to the activity of another. Helen Dickinson of KPMG said: "The problem with sales in the current situation is that it is a 'zero sum' game. In other words, this increasing level of activity has not grown the market, as a whole, in sales terms."
With regards to the true impact on margins of the current promotional approach, the RTT felt this was harder to call. For one thing, there is little visibility externally and for another it is impossible to ascertain what would happen if a discount were not offered. However, at risk of stating the obvious, unless the increased sales compensate for the loss of margin given away by the discount, profitability will inevitably fall.
As the heightened level of promotional activity is not growing the overall market per se and notwithstanding that the impact on margins is difficult to determine, the RTT believes that there will be many retailers in danger of under-achieving the objectives which were set out to justify the activity in the first place.
