Drapers reported today that some retailers have already begun discounting their autumn ranges in a bid to stimulate business, but how viable is discounting as a strategy?
House of Fraser have recently accelerated their level of discounting, with Cogenta identifying a ‘significant’ increase in the their price changes online. On a product range of over 70,000 items, House of Fraser lowered prices on over 5% of these during April through June as opposed to less than 2% of products in January to March. This is the biggest rise in price changes among the top 50 fashion retailers in the UK.
Clothing prices have continued to drop due to retailers widespread discounting
However House of Fraser are not alone in adopting this approach. Cogenta revealed that the biggest discounters, in the three months to the end of June, were Miss Selfridge, Evans and Dorothy Perkins - all retailers within Arcadia group. Also, the British Retail Consortium (BRC) reported clothing prices have continued to drop as clothing deflation has risen in the last 3 months, due to retailers widespread discounting.
Yet several retailers have achieved significant sales growth as a result of reduced levels of discounting. For example Supergroup reported yesterday that their ‘no sale’ policy has helped their sales grow by over 17% in the three months to the end of July. They stick to discounting only through outlet stores or via eBay. Chief Executive Julian Dunkerton stated that this policy enables them to be “more responsive to the weather”. This ties with Drapers report today that retailers have begun to mark down recently introduced autumn ranges, while summer stock that is now on sale is still in demand. Clearly the fact that discounting strategies could enable greater in-season responsiveness is something worth noting.
Customers can respond positively to less discounting
Fat Face also benefited from decreasing their discounting from 48 weeks of the year on sale to a maximum of 15 weeks. This has boosted their turnover by 9% and their EBITDA has risen 29% for the year up to June. Not only a positive result for the retailer but Chief Executive Anthony Thompson believes that consumers also feel postively about this approach, “They know they aren’t going to buy something this week and see it at a discount next week”.
The likes of House of Fraser therefore are treading a very fine line by increasing their discounting as this may cause less responsiveness and flexibility to external factors, not to mention loss of margins and perhaps even a shift in brand image and customer perception if they come to expect discounts to be given.