Sticker shock over holidays could shake up how retailers, consumers think about sales

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  • Consumers’ high appetite for spending and lack of global supply chains are clashing this holiday season, which will make it difficult to get huge discounts.
  • For retailers, this change could be an opportunity to retrain American consumers who have long been hooked on deals.
  • “Other countries don’t give discounts like ours,” said Katie Thomas, head of the Kearney Consumer Institute. “We’ve trained American consumers to wait for everything to be a bargain.”

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Keith Fitzgerald has gone to extreme lengths this holiday season to make sure she gets the perfect gift.

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Hairstylist Fitzgerald, 40, searched online and in stores for a special edition of Lego: About 4,000-piece set Which looks like home in the Christmas classic, “Home Alone”—complete with booby traps and a zipline for a backyard treehouse. She knew that a $250 set would please her boyfriend on the last night of Hanukkah.

Yet when he logged into the Lego website, the set sold out. There was no stock in any of the nearby stores. He reached out to family and friends across the country and enlisted the help of a friend who lined up at a New York City store, bought it for him and agreed to mail the giant box to his home near Richmond, Virginia. Done.

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“Shipping, it’s a little extra, but it’s worth it,” Fitzgerald said.

Consumers’ high appetite for spending and global supply chain woes are colliding this holiday season. For shoppers who are hard-to-find some desired toys, clothing, and other items, even retailers like Walmart and Target say there will be plenty of wares to choose from on the shelves. It’s also raising prices and flipping scripts for buyers who used to be inspired by a deal.

U.S. consumers will see smaller discounts across all major gifting categories, according to Adobe Analytics, which tracks retailers’ websites. Electronics, for example, is expected to peak at 22% discount during the holiday season, compared to 27% in 2020. Discounts on toys will be at 16% compared to 19% a year ago. And apparel will hit 15% instead of 20% in 2020, the company estimates.

According to Adobe, shoppers will still see the biggest discounts around major retail holidays, Thanksgiving, Black Friday and Cyber ​​Monday. However those prices will not be that low either. Adobe said that on average, it estimated that shoppers would pay 9% more during Cyber ​​Week than a year ago.

‘Lucky it’s there on the shelf’

With consumer demand so high and few items short on inventory, some retailers have found themselves with the upper hand. Macy’s and Kohl’s shares rose after retailers reported quarterly results, which benefited from lean inventory and some markdowns.

On the third-quarter earnings call, department store leaders said they’ve been able to pass on higher costs from shipping and take hefty price cuts when selling clothing, footwear and home goods. Even fewer items are getting off on the clearance racks of department stores. Which leads to more profit.

Luke Wathieu, professor of marketing at Georgetown University’s McDonough School of Business, said retailers don’t need to offer discounts the same way this holiday. In fact, he said, retailers would be foolish to do so. The fear of not getting a highly desired item is enough motivation to drive people to visit a store or retailer’s website and make them pay more.

He added that retailers no longer need to send messages to buyers with sales.

“They tell them ‘Look, the toy you want to give your child may not be there later,'” he said. “‘Shop early. Don’t go for the discount. You’re already lucky it’s on the shelf.'”

retraining shoppers

For retailers, moving away from dramatically slashed prices and face-to-face with competitors on price alone could create an opportunity, said Katie Thomas, head of the Kearney Consumer Institute. In the short term, companies can overcome the increased costs of materials and shipping and have fewer items that are marked up and added to clearance racks.

In the long term, she said, it could provide an opportunity to retrain American shoppers who have long been stuck with deals.

“Other countries don’t give exemptions like ours,” she said. “We’ve trained American consumers to wait for everything to be a bargain.”

This can have a big impact on the operating margins of companies and increase profits.

She said retailers can test and learn how to price fair or stand out in other ways. For example, direct-to-consumer companies, such as luggage company Away and apparel seller Everlane, rarely offer discounts and instead tout their particular products or customer service. Few people like Apple have such loyal fans that people stand in line for hours to buy an item at full price.

“I think of it from the simplest consumer standpoint, which is ‘if everyone is waiting to buy everything on the deal, then your price isn’t right or your quality isn’t good enough,'” she said.

Macy’s CEO Jeff Gennett said in an interview that the department store has tested its pricing approach. It has learned that there is a “price range” for commodity items like a basic T-shirt or a pair of denim jeans—but not as much on fashion-forward tops.

Other retailers have also spoken of looking at lower price-sensitive shoppers.

Tapestry, which is owned by Coach, Kate Spade and Stuart Weitzman, has noticed that customers are more willing to pay for handbags, even when the products are at full price. The company’s CEO Joan Cravoisrat said that the style, not just the low price, is driving customers to buy.

“We are seeing little price resistance,” she said in an interview. “And you know, I think it’s a sign that our brands have pricing power.”

According to Chris Malkowski, CEO of the company’s Home Solutions, Newell Brands, which owns home brands like Calphalon, said consumers are buying premium versions of cookware and even food storage.

The question, however, is whether the willingness to spend is a short-term change in consumer mindset – or a permanent change in people buying the goods they want, with less focus on price.

Walmart and Target have taken a step in the other direction, vowing to keep the price low and emphasize value in an inflationary environment.

According to the National Retail Federation, holiday sales are expected to hit a record sales of $843.4 billion to $859 billion, representing an increase of 8.5% to 10.5%.

Thomas said that if holiday sales meet or exceed those expectations — even during periods when inflation has hit more than 30-year highs — retailers will feel excited to keep prices higher in the future. can do.

Fitzgerald, who bought the Lego set, said he has seen supply chain challenges come into play in recent months. Some hair colours, shampoos and other items have been backordered at their hair salon. He was recently struggling to find shower curtain liners at the store when he was hosting an out-of-town guest.

He said he was thrilled to receive the Home Alone Lego set and is looking forward to giving it to his boyfriend, Will. It’s their first holiday season together – and this year, they plan to get engaged. He said the high price and hassle of receiving a set mailed to Virginia by a friend made it worthwhile.

“I laid the groundwork for telling him he wasn’t getting it,” he said. “So I think he’ll be really surprised. I don’t think I’ll always be able to surprise him that much, but we’re getting engaged this year and it’s our first big holiday season, so I wanted to make sure.” It was going to be a memorable holiday season from start to finish.”

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