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Industry News

Published on April 18th, 2018 | by The GC Team

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Continual discounting “damaging retail profit”

Research by payments provider Klarna, carried out with 500 British retailers, has found that 53% of retailers say “always on” sales are damaging profits.

Retailers are under increasing pressure to discount to keep up with competition and rising customer expectations, and discounting is no longer confined to the traditional winter and summer sales. “The new rules of retail,” says Klarna, “mean discounting has become a fluid and unpredictable phenomenon – with over half (57%) of consumers expecting regular sales.” 

 11% of retailers said discounting cost them over £25,000 throughout 2017. The eCommerce channel is particularly vulnerable, with 56% of retailers saying the majority of their discounted transactions come from online trade.

Luke Griffiths, Managing Director at Klarna UK, said: “Discounting can be a significant source of stress for retailers of all sizes – from the impact on profits to the operational difficulties that come with managing sales activity. Many merchants will discount to shift unwanted stock, so part of the solution is to make better, more educated purchasing decisions. But our research also shows how retailers can win over customers without slashing prices. Instead of discounting, merchants would do well to focus on perfecting the customer journey.”

Of consumers surveyed, 18%  said they only shop when there is a sale on – with 23% of millennials 25-34 year olds) and 22% of gen Z (16-24 year olds) most likely to wait for sales to shop, compared to 11% of over 55s. But 28% consumers say sales are too stressful and avoid them altogether, so there are benefits for retailers looking to break out of the discounting cycle by providing a better customer journey. 

45% of consumers said they would more likely to shop if they were sent a personalised offer, and, there is also evidence that constant sales and discounting can damage brand value and perception: 25% of consumers say they are less likely to shop regularly with a retailer who always has sales on, and 38% say that constant sales make a brand look cheap and unfashionable.  

Andy Mulcahy, Strategy and Insight Director at IMRG, added: “In recent years, events such as Black Friday have instilled in shoppers’ minds the idea that there are times of year when desirable product ranges – as distinct from the excess stock that is typically reduced to clear during seasonal sales periods – will have their prices slashed. The impact of this was particularly apparent in October 2017, when heavy discounts were already available across multiple retailers, as they tried to stimulate activity among shoppers who were holding out for Black Friday. Using discounting as a means for triggering activity is nothing new, the difference today is that it seems to be more regular and more widespread than was the case previously. That said, getting the basics right – selling items that genuinely appeal to the target demographic, optimising areas of the experience, providing leading service – remains the most effective method for increasing sales in a way that is far less reliant on discounting.”

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