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Who’s paying for those holiday sales?

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Kai Ryssdal: It’s clear this year’s holiday season was pretty grim. The grimmest, in fact, in a long time. Stores weren’t able to fend off disaster with those pre-Christmas sales. Which has led to a very uncomfortable question bouncing around the retail industry. Who’s going to pay for those steep discounts. Stores or the companies that made all the merchandise?

Marketplace’s Janet Babin reports from North Carolina Public Radio.

Janet Babin: Maybe you got this pre-Christmas e-mail too: Buy one cashmere sweater, get two free. Now, who’s paying for that? The company that makes the sweater or the company that sells it? Retail analyst Marshall Cohen at the NPD Group says it depends.

Marshall Cohen: That first 25 and even sometimes up to the 40 percent off, is generally split between the retailer and the manufacturer. When they start to discount the product below 60 percent off, nobody’s making any money.

That’s what happened this year. Now, manufacturers are renegotiating with department stores to decide who will lose less. Lou Breuning at HMS Productions sells Cable & Gauge sweaters at Dillard’s and Macy’s. He says the stores have agreed to price concessions for the first time — not that it’ll do his business much good.

Lou Breuning: We don’t come out ahead because of the renegotiated situations.

Not all apparel makers have been able to cut a deal. Here’s designer Alexander Julian:

Alexander Julian: I haven’t heard of any stores being generous to the people that make my product.

But there are deeper implications to all this discounting. Wendy Liebmann, at WSL Strategic Retail says customers could question whether stores are giving them the best deal possible during the spring shopping season.

Wendy Liebmann: When they started doing two cashmere sweaters for the price of one — was I paying too much in the beginning?

Steeper discount allowances might be here to stay, for retailers and manufacturers.

I’m Janet Babin for Marketplace.

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