Retail – is discounting a smart approach during this pandemic?

byFaye Eldridge inCovid19, Digital, retail posted on20th May 2020
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So many industries have been badly hit by this pandemic, and the retail sector seems to be at the forefront of them all.  Before the spread of the virus, the retail industry was already on shaky grounds.  Consumer skepticism was slowly increasing, and mass-production brands were being targeted for neglecting to address and conform to demands focusing on more sustainability and transparency.  Now, not only are businesses going to need to confront those issues, but they will also have to realign their retail strategies in order to target a more cost-conscious consumer, as more than 65% of customers in the US and Europe are aiming to decrease their spending on apparel.

In this year alone, the global fashion industry revenue is projected to shrink 27-30%, whilst the luxury goods sector will suffer a greater decrease of 35-39%.  Things haven’t gotten this glim for brands since the financial crisis of 2008, which forced numerous companies to slash prices in order to stay afloat and maintain cash inflow.  The similarities between this crisis and that of 2008, regarding what’s to come with the global economy, seems to bring brands to pursuit parallel actions to survive this period of economic uncertainty.  But will discounting several products, or in some cases ALL of their merchandise, actually present itself as a “smart and feasible business solution?”  

Yes, discounting can benefit brands in the short-term, but in the long-term, it will only cause the company more issues and distressing ramifications.  COVID-19 has forced retailers to temporarily close down brick-and-motor stores, which, as a result, has caused warehouses to be overpacked with unsold inventory.  Because of longer lead times and overfilled depots, “companies will turn to steep discounting to clear inventory”, a trend that is going to cause a ripple effect in the retail industry and is “reminiscent of the discounting culture that took hold during the 2008 financial crisis”.  To get customers to keep buying, companies are resorting to slashing prices as an incentive for people to shop.  Because many businesses are focusing on an off-price model, those brands that can actually afford to sell merchandise at a full price are also being forced to enter this ‘race to the bottom’, resulting in a prisoner’s dilemma.

Solely relying on a discounting strategy can potentially hinder consumer confidence and appear to be insensitive, especially as individuals are becoming increasingly concerned with ethical and sustainable production.  Reducing prices might help alleviate the burden during this time period, but “growth in the discount sector puts companies at risk of margin erosion”.  There are implications for discounting products and, if businesses decide to move ahead and pursue this strategy, must consider doing so with good judgement.  On the other hand, there are several options, other than offering mass discounts to consumers, that can help brands maneuver this dark and uncertain time period.  

Re-purposing existing stock for upcoming or new season –

Re-purposing existing stock for upcoming or new season would be an alternative approach for several businesses.  This could also help boost consumer confidence, especially with Millennial’s and Gen Z, as it goes to show that the brand is steering away from mass-production and integrating sustainability within their new core strategy. Re-purposing stock is also a good way to postpone filling in new orders until your current supply of merchandise is finished, which means less expenditures.  

Targeted discounting strategy –

Targeted discounting strategy is another good solution, as it “boosts direct sales without hurting the brand’s image”.  Implementing a site-wide discount can hinder the brand, as it goes to show that the company is more concerned with generating sales than playing a role in sustainable production.  Thus, engaging in targeted discounting can be an alternative proposal.  It would allow the businesses to be more selective of the merchandise they choose to put on sale and, as a result, avoid ‘training’ their customers to only purchase discounted items. Take example from a minimalistic luxury brand called Mansur Gavriel.  They, for instance, are offering a 20% discount on specific colors each week, which “keeps customers coming back to find new deals”.

Issuing gift cards –

Issuing gift cards is also another possible route brands can take to generate sales.  This would serve as an incentive for customers to purchase from the website and maybe spend a certain amount to receive a gift card or discount during their next acquisition.  Several brands have already resorted to this alternative and, countries like China, are replicating a similar scheme by issuing vouchers to citizens in order to encourage consumption and spending.    

Brands should be urged to undertake other sales strategies for the time being and avoid solely focusing on slashing prices throughout their product line.  There are other effective and innovative ways you can go about selling your merchandise! Don’t limit yourself to doing the same thing everyone else is doing just because it’s convenient, try something different and who knows maybe your brand will come up with a new and unique approach to reaching consumers.  This is the time to turn things around and be a mover and shaker in today’s world. 

Sources: Business of Fashion  

Subject: Marketing for a TENNER.

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