Retailers are stuck in a cycle of constant sales
Retailers are stuck in a cycle of constant sales
Retail sales numbers were up 0.6% in December — the month that closed out the 2023 holiday season. Last year, holiday promotions started as early as the day after Halloween. Meanwhile, we just came off Martin Luther King weekend, which, despite having nothing to do with gifting, also came with deals. Next up, there will be sales for Valentine’s Day, President’s Day and every “Day” after that.
We’ve even gotten to the point where sales inspire sales. When Amazon has Prime Day, Target has Target Circle Week and Walmart has Walmart Plus Week. So the question is: If everything’s always on sale, is it actually ever on sale? And how did we get to this 24/7 sales environment?
Let’s start with a story about one company that tried to put a stop to nonstop sales. It’s the early 2010s, and JCPenney is reinventing itself. It hires a new CEO, Ron Johnson, a former VP at Target and Apple.
“Johnson comes in and he wants to kind of Apple-ize Penney,” said Rita McGrath, a professor at Columbia Business School.
JCPenny made a bunch of changes. The biggest one was it did away with sales.
“They said we’re gonna offer, I think they called them real, honest prices,” said McGrath.
The new CEO, Johnson, felt JCPenny’s prices were artificially inflated and constantly on sale. Nearly three-quarters of the retailer’s revenue came from products sold for at least half off. Johnson figured the consumer would rather pay a consistent, low price instead of being overwhelmed by coupons and markdowns.
But Johnson was wrong.
“The loyal Penney’s shopper now is completely confused,” said McGrath.
Shoppers were confused about the brand, its value and the new pricing system. So they stopped shopping. Sales plummeted, Johnson was fired and JCPenney brought back its old CEO — and the sales.
“People love feeling that they’ve gotten a deal or that they’ve gotten something special or that they gamed the system in some successful way,” said McGrath.
In the last decade, getting a good deal has become even more important to consumers. The middle class has shrunk and the share of low income consumers on a budget has grown. Online shopping has also gotten a boost, and with it, the ability to quickly compare prices.
All of this has put pressure on retailers to sweeten deals.
“A discount of 15 to 20% used to be a decent promotion,” said Scott Neslin, a marketing professor at Dartmouth College. “Now, that would be considered, you know, that’s absurd. We want 40 to 60% off.”
Sales have become so common that now many consumers refuse to pay full price. It’s a sales spiral.
“Constant promotion trains people to buy on promotion,” said Neslin. “So that can mean either delaying a purchase or purchasing ahead of time.”
Maybe you make do with your half-broken suitcase until the one you’ve been eyeing goes on sale or you stock up on your favorite brand of face cream when it’s 20% off.
This promotional cat and mouse game can make consumers feel good for a while. But the constant noise of sales can be overwhelming.
Plus, retailers can hide behind deals to carry out shady business practices. Take a sweater listed for $50, but is never actually sold for $50. Instead, it’s always on sale for $35.
“That’s a false statement and it’s likely to mislead some consumers who are acting reasonably, so it’s illegal,” said Chris Peterson, who teaches consumer protection law at the University of Utah.
Many brands have faced lawsuits over this. But the reality is the burden is usually on the consumer, who’s probably not going to take the time and money to sue.
“So that’s part of the reason why companies do it, because there’s a good chance they’re going to get away with it,” said Peterson.
Most experts agree that this deals-driven environment can’t last forever. Instead, sales are changing and getting more personal with loyalty programs. Amazon Prime Day is only for Prime members. Sephora offers specials to members who spend a lot.
And with all the data companies collect on us now, they can offer catered promotions based on when you typically buy, how long something sits in your cart or how many TikToks you’ve watched about, say, how to organize your pantry.
“All of those could potentially be data sources that retailers either today or in the not too distant future may be using to craft a particular price for you,” said Peterson.
And if that’s the case, we’ll truly never know if a deal is too good to be true.
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