Americans indulged in one of their favorite pastimes over the long Thanksgiving weekend: shopping. They were in full force gobbling up all the heavily discounted merchandise meant to entice them to the store and onto the internet. The National Retail Federation reported that more than 174 million Americans shopped from Thanksgiving through Cyber Monday, which beat the association’s pre-holiday prediction that 164 million consumers would indulge.
Matthew Shay, NRF president and CEO, said, “From good weather across the country to low unemployment and strong consumer confidence, the climate was right, literally and figuratively, for consumers to tackle their holiday shopping lists online and in stores.”
Americans also signaled their shifting preference for the convenience and efficiency of online shopping. One-third of Thanksgiving weekend shoppers participated only online while just under 40% shopped both in-store and online. Only slightly more than one-fourth of weekend shoppers went to the store exclusively.
On average, NRF reported shoppers spent $335 over the five-day weekend, with 75% of that devoted to gift purchases. While they caution about drawing direct comparisons with reported results from Thanksgiving weekend 2016 because of changes in survey methodology, reported spending rose 16% this year over last year, which is at least an anecdotal marker of consumers’ greater willingness to spend.
But, and this is a huge but, some 60% of holiday shoppers said a majority of their weekend purchases were driven primarily by sales. WalletHub analyzed Black Friday deals from 35 of the biggest U.S. retailers and found that jewelry and books/movies/music were the most heavily discounted categories, with retailers offering discounts of 59% and 57% respectively. Apparel and accessories were the next most heavily discounted category, with retailers marking fashion items down nearly 50% in early holiday deals.
It should give retailers pause to think about what such heavy discounting means for their businesses, their brands and their future. Big-data retail analysis firm EDITED, which studies more than 650 million products worldwide, found that discounts this year were offered earlier and were deeper than those last year. Looking at the U.S. online apparel market, some 48% of all merchandise was discounted over the holidays, at an average rate of 46% off. This compares with 44% of merchandise offered on sale last year, at an average of only 36% off.
And in an unprecedented move, many luxury brands got in on the discounting game as well. EDITED reported nearly one-fourth of luxury handbags were on offer at discounts ranging from 40% to 50%, up from 30-40% last year. Fendi, Balenciaga, Tom Ford and Prada were the most discounted brands this season.
Such aggressive discounting so early in the season suggests that as the season progresses, even greater discounts will be coming. This expectation of even better deals to be had is not lost on consumers: Bloomberg quoted a Barney’s shopper enjoying 40% discounts on luxury brands at the Madison Avenue store as saying, “If they are giving a 40% discount now, how much are they going to give for Christmas — 60%, 70%?”
All this discounting is a trap for retailers. Sure, it works, but at what cost? Katie Smith, retail analysis and insights director at EDITED, puts it mildly: “While the retail industry has banked on aggressive discounts weeks before Black Friday and Cyber Monday to boost consumer spending, they need to make sure that this does not sacrifice margins in the long run.”
The simple fact is discounts are what retailers need to move their products. The products alone don’t do it anymore. “There has been a shift in the value consumers place on products, especially apparel and accessories,” Smith says. “In part that’s a reaction to the discounting epidemic of the last few years, but there have also been fundamental shifts in society which are in the process of realigning the role possessions play in our lives.”
It’s more than just a shift toward spending on experiences. The culture is reassessing consumerism and the false promise of materialism as the key to happiness and fulfillment, which it surely is not.
In order to stimulate material goods purchases, deeper, heavier discounting is required. But it becomes a “race to the bottom,” as retail strategist Robin Lewis says, where the “winner” ends up the real loser. Maybe it’s not so bad for brands like Target, Walmart or Kohl’s, since getting more for less is part of their brand DNA, but for luxury brands it is the kiss of death. It devalues a luxury brand, when that perception of luxury value is the very foundation on which the brand is based.
“The paradox, of course, is that while the retail consensus is that consumers are ‘hooked’ on the ‘drug of sales,’” Lewis writes, “the longer and more persistently brands and retailers ‘push’ the drug, the more the process becomes an implicit admission that their brand or store is worth less.”
People won’t pay the full price, not only because they don’t have to but also because the stuff simply isn’t worth it. The value isn’t there. “Communicating value is absolutely key, at every price point,” Smith says. “Brands and retailers have a task ahead of them – more than ever before they have to make products that are unique and speak to consumers in a very direct way.”
This season’s early and deep discounting sets retailers up for even more troubles next year. The current retail environment is untenable, even as nearly 7,000 stores shut their doors this year, a record number of store closing. No doubt, more will follow in 2018 as the need for deep discounts to drive traffic results in lower retail profits, with the costs of doing retail business continuing to rise all the while.
“A pall has been cast on retail. A day of reckoning is coming,” Charlie O’Shea, a retail analyst for Moody’s, told Bloomberg. The reckoning O’Shea speaks of is the heavy debt loads retailers are carrying.
Bloomberg writes, in an article entitled “America’s ‘Retail Apocalypse’ Is Really Just Beginning”: “There are billions in borrowings on the balance sheets of troubled retailers, and sustaining that load is only going to become harder — even for healthy chains. The debt coming due, along with America’s over-stored suburbs and the continued gains of online shopping, has all the makings of a disaster. If today is considered a retail apocalypse, then what’s coming next could truly be scary.”
Smith expects we will see “an ongoing emphasis on off-price and discounting in 2018.” And that will mean retailers will have less in their coffers to pay back the debt that is coming due over the next five years. So while NRF cheers from the sidelines that all is well and good at retail, the price retailers have to pay to get shoppers to buy may well be too high.