Is it time UK retailers ditch discounting for good?
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Retail |REPORT
London - Even though Black Friday may not have quite the draw to the high street as it did in the past, in 2017 the discount shopping day boosted online sales across Europe by 509 percent. 47 percent of all womenswear was reduced in price as well, according to the WGSM Barometer, underlining the growing appeal to snag a fashionable deal.
However, only a few retailers, such as Fat Face, refused to participate in the borrowed US holiday and still increase sales and revenue. With a growing number of discount online stores opening up, such Bluefly, TK Maxx and H&M's AFound, can UK retailers take a firm stance against discounting? Is it an essential part of any online business, or is it just a bad habit we can't kick?
Scroll to the bottom of the article to see the infographic with all the discount data
According to a recent survey of 500 UK retailers from online payment provider Klarna, sales are becoming increasingly stressful and problematic for merchant operations. But as the frequency of sales continues to increase, far beyond the traditional sales calendar, discounting has become an unpredictable occurrence for retailers. More than half of the consumers questioned (57 percent) expect regular sales - however, this, in turn, can have a negative impact on retailers bottom line.
"Always-on" nature of discounting is hurting UK retailers profits
53 percent of the retailers surveyed say the "always-on" nature linked to sales is having an adverse effect on their profits, with 11 percent revealing that discounting cost them over 25,000 pounds throughout 2017. Although some may think this only applies to smaller retailers - after all Asos has only benefitted from its permanent discount corner - retailers of all sizes are said to be feeling the squeeze of discounting. Retailers with 100 to 239 employees feel the burden the most, with 66 percent noting that ongoing discounts are impacting their profits.
In particular, retailers e-commerce channels were found to be particularly vulnerable, as 56 percent of retailers said the majority of their discount transactions came from online. "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," commented Luke Griffiths, Managing Director at Klarna UK. "Many merchants will discount to shift unwanted stock, so part of the solution is to make better, more educated purchasing decisions."
However, there are a growing number of signs which indicate that shoppers are gradually turning away from extreme discounting and seeking out a more positive, shopping experience. "Our research also shows how retailers can win over customers without slashing prices," added Griffiths. "Instead of discounting, merchants would do well to focus on perfecting the customer journey - from an inspirational browsing experience through to a seamless checkout phase, with multiple payment options and one-click repeat purchase options."
Are consumers overwhelmed by "always-on" discounting?
People have been seeking out bargains for thousands of years, as nabbing a deal makes us feel like we succeeded. If the perceived value of an item is greater than the price we are prepared to pay, then it usually leads to an irresistible impulse to purchase the item - which could explain a number of mis-purchases made in the spur of the moment because of discounting. But over-exposure to sales can also change consumers perception of a brand, reducing value which made their products seems inferior. Shoppers can become bargain-driven and unwilling to pay full price for any products from a certain brand unless they are on sale.
Scroll to the bottom of the article to see the infographic with all the discount data
In order to better understand the consumer sales spiral, Klarna surveyed 1000 shoppers to learn more about their attitudes towards discounting and how it may influence their behavior. Results indicated that 18 percent of the respondents only shop when there is a sale on - with millennials (23 percent of 25-34-year-olds) and Generation Z (22 percent of 16 to 24-year-olds) being the most likely to wait for sales to shop, compared to 11 percent of the over 55-year-olds. A quarter of consumers also said that they were less likely to regularly shop somewhere which always has a sale on, and 38 percent think that constant sales make brands look cheap and unfashionable.
But Klarna also found signs that of a increasing demand for a more positive, personalized shopping experience that does not revolve around sales. 28 percent of consumers find sales shopping too stressful and tend to avoid them all together, while 45 percent said they are more likely to shop with a retailer that sent them personalized offers. As a number of consumers find discount shopping stressful, there is room for retailers to tap into more shopper-centric initiatives to win them and their loyalty over. 36 percent of respondents said they would be more likely to buy full price items if they were able to pay for them later, once they had received the products and decided what to keep.
How UK retailers can avoid the sales spiral
Retailers who offer multiple payment options, both online and in-store, offer a broader choice, convenience, and financial flexibility. "Providing an exceptional customer journey at any time of year is vital," continued Griffiths. "It’s clear that merchants and consumers are increasingly disillusioned with discounting and should look instead to ‘surprise and delight’ shoppers in the everyday user experience. They can do this with features such as a mobile-optimized checkout, one-click purchases, deferred payment options and personalization."
Andy Mulcahy, Strategy and Insight Director at IMRG, the UK’s industry association for online retail, 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, optimizing 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."
Infographic: Klarna