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How far can the discounts go?

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AMY SCOTT: Retailers are taking stock after a lackluster holiday shopping season. Macy’s said today it will close nine underperforming stores. You’re likely to find some crazy sales as well. And that goes for all kinds of retailers. As Jeremy Hobson reports, it’s a short-term fix that could spell long-term trouble.

JEREMY HOBSON: Retail analyst Patty Edwards says in a typical year stores lure in consumers after Christmas with sales of up to 50 percent off. This year, she says, shoppers are seeing discounts of 70 percent or more.

PATTY EDWARDS: They are doing anything and everything they can to get the traffic in their doors.

But why do the discounts have to be so big? Robert Passikoff of the consulting firm Brand Keys Incorporated says it’s all about consumer expectations.

ROBERT PASSIKOFF: The retailers themselves have essentially trained the consumers to understand that a $250 coat is really not worth $250.

So that coat might be on sale for 75 bucks instead. The problem with that, he says, is shoppers won’t pay higher prices later, now that they’re used to the deals. Analysts agree other options to boost profits like laying off staff are ineffective in the end, because bad service brings down the brand. But not everyone thinks there’s a crisis in the industry.

RICHARD HASTINGS: Any discounting that’s done right now is done very carefully with sophisticated software so that there’s not too much damage to profit margins.

That’s retail analyst Richard Hastings.

HASTINGS: Yeah, profits won’t grow at the same rate, and there will be this slowdown. But it’s nothing like these rumors of a total industry meltdown that are circulating out there.

If it’s not a meltdown, the industry has definitely sprung a leak.
And analysts say retailers are doing whatever they can to patch up the hole in time for the end of most fiscal quarters next month.

I’m Jeremy Hobson for Marketplace.

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