2012 100 - Networld Media Group

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DISCOUNTING
Discounting dates back to the days of
open-air bazaars, but the proliferation
of e-commerce and smartphones now
puts the neighborhood boutique in direct
competition with the biggest discounts
offered by any vendor anywhere
in the world. And vice versa.
The practice is bleeding profits from
traditional retailers, with daily deals
and online rivals inflicting most of the
damage. Best Buy, to cite but one highprofile
example, saw its shares plunge
more than 15 percent after reporting
a steeper-than-expected drop in 2011
third-quarter profits and margins —
the result, Wall Street analysts said, of
fierce price competition from Amazon.
Only 20 percent of new customers lured
in by daily deals ever return to make
a full-price purchase, according to a
study conducted by Rice University.
Despite this, the vicious cycle is perpetuated
by retailers who feel the need
to promote, “but know that increasing
discounts are eroding category value,”
according to Bob Welch, senior vice
president of manufacturer practice
client solutions at dunnhumbyUSA.
Meanwhile, he says, “manufacturers
feel that retailers are driving promotional
strategies that do not make sense
for the category and are eroding their
brand’s equity.”
While strategic discounting can be an
effective quick-fix for moving volume
in a struggling economy, the fix leaves
consumers craving ever bigger, deeper
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discounts — and nothing but discounts.
Cynthia Jasper, a consumer science professor
at the University of Wisconsin,
warns that pursuing discounts can become
an addiction. Or as James Dion
of the retail consultant Dionco puts it,
many discount hunters “don’t bother to
eat what they kill,” citing research findings
that 30 percent of Groupon deals
are never redeemed. “That really leads
me to believe that it’s the thrill of the
hunt. For some consumers, it is just
scoring the deal.”
THE ECONOMY/UNEMPLOYMENT
The numbers say the Great Recession ended way back in June 2009. Somebody
needs to tell the economy that. Growth isn’t accelerating as it normally would during
a recovery. The U.S. economy in 2012 is expected to grow a scant 2 percent
(unchanged from 2011). While 2 percent may keep us from dipping back into recession,
it won’t make much of a dent in unemployment. It follows, of course, that
with more people out of work, fewer people will be buying, and thus the retail sector
will decline.
Consumer spending, which accounts for about 70 percent of GDP, has been positive
but shows no signs of driving a sustainable recovery. The economy will remain
vulnerable to possible shocks, such as war, terrorism, oil price hikes, or natural
disaster. Any one of these could tip the U.S. into recession.
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