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Retail Discounting – The Road to Ruin

Discounting - The road to ruin
The view of a display window of total stock liquidation and big discounts due the imminent closure

It’s tough on the high street right now, really tough. You may have heard the expression when people say things happen in a certain way because all the planets just line up right for them? Well I’d argue that at the moment that lining up of planets is having the opposite effect. Many retailers who have been struggling for some time with digital, have subsequently had GDPR to contend with and the rights of access of personal data, followed by Brexit and the general political climate both here and in the US and China. Then, on top of that, they’re now seeing the additional impact of a lack of footfall, caused through personal financial anxiety or environmental challenges (such as waste recycling) and in some cases climate change that affects seasonal shopping behaviour. It’s no wonder that most find themselves only being able to compete on price.

But it doesn’t have to be this way. As these opening remarks prove, businesses have, and always will be, creatures of their global and domestic environments. Yes, some like Patisserie Valerie fail because of creative accounting, but others like Toys ‘R’ Us, Maplin, Blockbuster and before them Woolworths have all disappeared because of changing conditions. In other cases: Henri Lloyd, Feather & Black and Evans Cycles have survived where buyers have been found, but that’s not been without a lot of pain. Then there’s the small independent specialist retailers who operate in every town up and down the land, offering great customer service, incredible know-how, insight and dedication to their field; companies like Joto’s Toys in Rugby who ran a real Aladdin’s Cave of everything and anything for 37 years, or Thornton’s Cycles easily their counterpart for bicycles who have traded here for 50 years and is due to close this April. Retail stores like these were the epitome of why each town was different and unique, but soon they too will be lost as a mere statistic, or a story for grandparents to tell their grandchildren.

The changing face of consumerism, that continues to buy heavily online, or only at the lowest price will show no loyalty, no appreciation of what’s important, no understanding of their combined effect on retailers. Chasing these swathes of shoppers for their custom based on discounted product is truly the road to nowhere. Of course, I can understand why business owners might see this as an essential step towards driving cash into the till, but it’s far from that (unless of course you’ve already decided this is your last hoorah).

As a retailer it’s easy to assume that because your competitors continually offer discounts, you should too. But in offering that extra 10% discount when times are lean will make tomorrow even harder. Assuming you have a gross margin of 20%, will mean that extra 10% discount will require you to sell twice as much for the same financial return and that in turn will require more marketing spend, fuelling the ‘beast’ that eats your cash. When taking the time to understand what you do well, and what still has a place in society is all that stands between you and your continued success. Sounds simple doesn’t it? Well of course it isn’t, but it is possible.

In 2011, I was brought in to help a struggling family business who’d been in existence for nearly 100 years. Things were grim, tensions in the firm at board level were high and there was a lot of work to do to help them. But together we passed the survival stage and through adaptions in machinery, changes to staff, processes and systems and a restructuring of the roles and the premises portfolio, that company is now issuing annual dividends to its shareholders again. People are smiling where once they were tired.

You see, when you’re in the woods you can only see trees all around you, when what you need to do is to walk outside and take a different view. That’s not easy, but with some external help it’s more than achievable. The view that can be so gloomy, can simultaneously be so bright because it creates new opportunities in much the same way as green shoots push up through the ground after a massive forest fire. The dead wood’s gone and been replaced with new shoots of recovery. The difficult bit is changing your mindset to allow for fresh thinking, to find these opportunities that others look for. Retail firms that get picked up by the bigger firms are being purchased because they want increased market share or a chance to diversify themselves into a ready made network. They look for businesses to buy at lower investment, in much the same way as new customers flock to you as soon as you announce a cessation of your business.

The thing is even in retail, not all consumers buy on price 100% of the time and many never buy on price. But as long as that’s your only point of differentiation, that’s what your telling them is the difference between you and another.

Your job now, if you have the appetite for it, is to really assess what it is that you want and that may mean you need some help. Understanding buyer segments and behaviour can help you maximise your profit and reduce your costs, alternatively you could always try and sell twice as much at that discounted rate I mentioned earlier!

If you’re a bricks and mortar retailer (or manufacturer) and would like to speak to me about any of the issues raised in this post, please email me, Nigel Davis.  

Nigel Davis was voted ‘One of Britain’s Top 50 Small Business Consultants’ & is an MCIM Chartered Marketer.

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