Retailers warned of Cost of Early Discounting

Posted on 2 December, 2014 by Kirsten Kennedy

Retailers are this week in high spirits after a bumper Black Friday which saw the Christmas trading season get off to a strong start. Unfortunately, though, the good mood may not last long after the bells ring in the New Year and they must examine the impact heavy discounting so early in the season will have had upon their profit margins, as economists are now warning many will fall short of their sales targets.

Shop Window With Sale Banners. Shopping Series.

According to the Confederation of British Industry (CBI)’s latest quarterly retail report, heavy competition and an unwillingness by consumers to spend in earnest are forcing retailers to cut prices as a means of shifting stock. Although this may translate into strong sales figures for the pre-Christmas period, the price cuts imposed by retailers could see some struggle to reconcile their actual takings with minimal profits becoming the result.

Where once the Christmas sales did not begin until Boxing Day, and even New Year’s Day for some brands, discount season has already begun on UK high streets with almost a month left until Christmas Day itself. However, while this may leave some retailers out in the cold in terms of profits, CBI spokesman Barry Williams points out that it also creates huge opportunities for those willing to take a risk.

He says; “It’s no secret that it has been a demanding year for the retail industry but shopkeepers haven’t been pulling their punches when it comes to getting shoppers through their doors – borne out with the lowest essential item inflation in five years and growing online sales.

“This latest survey shows many have been winning some rounds in what has been one of the most challenging years for both the industry and for customers.”

In the three months to November, the trend for strong sales of household goods prevailed with carpet, furniture and DIY retailers posting extremely positive results. Yet in an unexpected turn of events, it seems that bookseller Waterstones could also stand to be a winner this Christmas, as managing director James Daunt believes the chain is well on its way to breaking even this financial year after narrowing its losses to just £23 million last year.

Mr Daunt has somewhat revolutionised the chain since taking the helm in 2011, implementing a programme of store closures and restructuring which cut around 200 management roles in order to take on “highly motivated booksellers”. He also ended a number of deals with publishers, which had been worth millions of pounds each year, so local stores could display titles staff believed would appeal most to consumers in their area rather than the “sponsored” window displays of old.

He explains that this technique proved very popular on Black Friday, saying; “The bet was that we would sell more books if the shops were interesting rather than homogenous.

“We had a sensational day, which I must say slightly surprised us, and we saw a huge sales uplift which was very nice.”

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