Americans have become so accustomed to deep discounts that they expect each sale to be bigger than the last, putting extra pressure on retailers to slash prices and threatening retailers' bottom lines, say analysts
December 7, 2011
– Sale, schmale.
Used to be, customers would come running when stores cut prices. But these days, more Americans are becoming blasé about bargains.
Jennifer Beasley recently left a Toys R Us in Cary, N.C., unimpressed by the retailer's offers that day of 50 percent discounts on things like a $150 Sylvania tablet computer and a $45 My Baby Alive Doll.
"The sales just aren't as good this year," says Beasley, 30, who has three children. "It's almost not worth getting up."
People have been shopping more than ever this holiday season, largely because of a flood of sales. But Americans have become so used to deep discounts that they expect each sale to be bigger and better than the last. That means retailers will likely have to keep slashing prices, which could hurt their bottom line.
"I think they're going to have to continue to do the kind of 'come on' pricing that you saw on Black Friday," or the day after Thanksgiving, says Alison Paul, head of consulting firm Deloitte's U.S. retail practice.
Merchants already are rolling out big holiday sales. The Body Shop is letting customers spin a wheel of chance to win different discounts, including offers of "buy three, get three." The Gap is selling many of its pajamas, kids' hoodies and men's cardigans for 50 percent off. And Target has Barbie, Thomas the Tank Engine and many of its other toy brands for "buy one, get one half off."
But shoppers are yawning at deals that once excited them.
"The ads and the sales — I think it's all hype," says Karen Finch of Gresham, Ore., who is waiting to buy a tablet for her son until closer to Christmas Day because she thinks the discounts on Amazon.com — 48 percent off a $500 Blackberry version, for instance — aren't good enough. "There's no substance."
To be sure, consumers' perceptions of deals don't always jibe with reality. Most retailers decline to discuss their pricing strategy because of competitive reasons, but research by analysts at Jefferies & Co. and other firms found that many deals this year are as good as — if not better than — last year's.
For instance, American Eagle offered 40 percent off everything all day on Black Friday — better than the 20 percent off until noon that it offered for the past two years, according to Jefferies analysts. The average discount at Best Buy on Black Friday was almost 45 percent, up from about 34 percent last year. The average discount at Wal-Mart was about 47 percent, better than last year's average of 43 percent.
And anyway, what shoppers say and do often are two different things. Consumers told Deloitte in September that they planned to spend about 5 percent less on Christmas this year. But the reality so far is different: Americans spent $52.4 billion over the Thanksgiving holiday weekend, the highest total ever recorded for that period and 16 percent greater than last year, according to the National Retail Federation.
"You can't always listen to what they say," says Allen Adamson, managing director at the branding company Landor Associates. "What counts is what they do at checkout."
Indeed, Atty Zschau of Portland, Ore., has been disappointed with the holiday sales she's seen so far this year. But instead of going home empty-handed on Black Friday, she shelled out $800 — full price — for a Dell laptop that will be shared among her family.
"We're normally 'deal' people," says Zschau, an acupuncturist. But, "All the stuff that was on sale was not what we wanted."
The discontent with discounts comes at a time when many Americans are struggling with job losses and stagnant wages. Many shoppers simply have less money to spend this holiday season: The median U.S. household income was $49,445 last year, down from $50,303 two years before.
And deals just don't seem as good if the iPad tablet computer you want is still outside of your budget. A $1,000 TV marked down 20 percent might seem like a good deal for a shopper who has $800 to spend. But it's not such a fab find for someone with only $700 in his pocket.
"Discounts are supposed to mean, 'I can get it,'" says Michael Norton, a Harvard Business School professor specializing in consumer psychology. "So if you can't get it, it doesn't feel like a very good discount."
Cost-conscious shoppers also have a long memory about the better sales they've seen in the last few years, says Alison Jatlow Levy, retail strategist with consulting firm Kurt Salmon. For instance, teen retailer Aeropostale offered discounts on Black Friday of 50 percent off everything and another 20 percent off until mid-afternoon. But that may not have been enough for Aeropostale shoppers who remember that the chain slashed prices up to 70 percent all day in previous years.
"Customers probably remember that last year things were 60 percent off, and this year maybe they're only 25 or 40 percent off," Levy says of some store discounts. "But those things probably weren't 60 percent off until closer to Christmas."
Rebecca Walden of Birmingham, Ala., learned that lesson the hard way. Last year, she and her husband stayed up late on Thanksgiving night buying Christmas gifts online for their daughter, who was then one-years-old. They were patting themselves on the back about the discounts of 10 to 20 percent off they got on toys like a rocking horse, a play kitchen and a set of 150 building blocks. That is, until they found many of those same items on sale for half off later in the season.
Walden, 33, decided not to repeat that mistake. So she's done virtually none of her Christmas shopping yet. She's waiting it out for a deal on a few items, like a sale on a Wiggles guitar, which generally runs at least $65.
"I'm not convinced they've hit rock-bottom prices yet and Christmas is still several weeks away," Walden says. "I think the phrase is 'playing chicken.'"
Sarah Skidmore reported from Portland, Ore. Christina Rexrode reported from New York.
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