Jeweller - June, Edition II 2020

BUSINESS
Management
Beware the discount trap:
how discounting damages retailers
Still popular as a way to attract customers, discounting can actually cost businesses millions in lost sales.
In fact, BRYAN PEARSON says a higher markdown can prolong a sale.
In the fashion world, hemlines may rise
and fall by the season, but the shelf life
of a discounted $500 skirt can drag on for
days – 106, to be precise.
An analysis of 114 luxury, premium
and mass-market apparel and
accessory retailers found that’s how
long it can take an online luxury retailer
to sell a piece of women’s wear, even
when discounted.
Furthermore, when luxury items such
as jewellery are marked down at a
higher percentage, say 40-50 per cent,
they take 19 days longer to sell than if
marked down 30-40 per cent.
Meanwhile, mass-merchandise items
sell faster at discount, especially
when marked down by less. Women’s
wear sold 11 days quicker when first
discounted from 30-40 per cent, rather
than 40-50 per cent.
The difference cost retailers millions
in needless reductions, according to the
research which was conducted
by Edited, a retail-analytics company
with offices in New York, London
and Melbourne.
The same unusual trends occur across
other fashion sectors, from luxury
apparel to kids’ clothing.
But why? What does it mean?
According to Katie Smith, senior retail
analyst at Edited, merchants fail to
factor in several basic but highlyrelevant
factors.
Additionally, pricing strategies can
be blurred by a range of issues,
such as shopper behaviour and
competitive distraction.
Timing, popularity, and beyond
A key benefit for retailers is that they
have a large volume of data available to
help them analyse pricing, Smith says.
However, this also requires that they
Retailers still
miscalculate
how much
to discount
because they
fail to include
pertinent factors
in the formula,
such as timing,
product type,
category and
popularity
understand what they have and how to
use it.
Retailers still miscalculate how
much to discount because they fail
to include pertinent factors in the
formula, such as timing, product type,
category and popularity.
There may also be a psychological
effect at play, in that the shopper may
perceive a larger discount to mean the
product is undesirable.
As consumers purchase more
goods online and expect to only buy
those goods when they’re ‘on sale’,
Smith believes that retailers must
invest in technologies that give them
a holistic view of the market and
consumer demand.
“Today, retailers can use analysis
tools to understand a trend’s demand
before they even put a style into
production, which helps buyers know
how many orders to place,” she
60 | June 2020