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Tuesday July 22nd 2008

Seasonal sales revenue uplift conspicuous by its absence

Are the summer sales in full swing yet? Well, there are plenty of signs that they are.

by Helen Dickinson

Walk into any shopping centre or down a high street and the evidence of sale banners and carrier bags is abundant enough. Some retailers have been in sale for a good four weeks now, a much earlier start to the season than in previous years.

However, looking at the latest BRC-KPMG Retail Sales Monitor (RSM), the year-on-year uplift which an early sales season traditionally brings to trading figures is conspicuous by its absence. The figures for June, published earlier this week, revealed that like-for-like sales actually fell 0.4 per cent compared with the previous year.

So if sales are a useful tool for boosting growth, shouldn't we have seen better results in June, particularly if they are compared to a non-sale period last year?

Clearly the tough economic backdrop means that sales figures are going to look lacklustre. But I think much of the confused picture is due to 'blurring' of the traditional sales seasons, with promotions and discounting now much more widely spread across the whole year.

At a meeting of the KPMG/SPSL Retail Think Tank (RTT) earlier this year, following the traditional January sales season, we debated how sales have changed far beyond their origins as a means of clearing the last of the season's stock during a couple of defined times of the year. Sales have evolved much more into specific and targeted promotions and discounting, which are widely used on more of a tactical or reactive basis.

So is that what we are seeing now? The current proliferation of sales and discounts appears to be a natural reaction to the tough trading conditions we are currently experiencing. But is it the best response?

The RTT debated the risks of an ongoing, sustained culture of discounting, and agreed that the situation runs the risk of becoming untenable in the longer term. If consumers are constantly exposed to mid-season sales, two-for-ones, discount vouchers and special '10 percent off everything' events, it gets increasingly difficult for retailers to drive sales at full price.

The trend towards ongoing promotional tactics has 'trained' consumers, if they have the freedom or opportunity, to be more inclined to wait for discounted offers. The RTT suggested that discounting can incentivise 'bad' behaviour from the retailer's perspective, turning previously 'good' customers into ones with a constant bargain-hunting mentality. In other words, sales become the norm.

It's not an easy pattern to change though, particularly during these difficult economic times when consumers are looking to cut back spending. So going back to a more 'traditional' model of using sales solely for clearance purposes would require a significant change of mindset, both on the part of the retailer and consumer.

So what's the alternative? Are we trapped in an ever increasing spiral of discounting?

Not necessarily. One positive piece of news I heard recently was that Banana Republic, the US chain which launched in the UK earlier this year, is skipping the summer sale season simply because it doesn't have enough stock to sell off. Clearly this is a company which has the right proposition in place for its customers.

As part of our deliberations, the RTT concluded that the retailers which continue to focus on their value proposition and use sales, discounts and promotions as a planned, strategic tool are more likely to be more successful. This means concentrating efforts on activity which adds value to consumers, of which price remains just a part of the equation.

Having the right products, brand and environment are equally important - particularly when consumers are being cautious with their money.

Helen Dickinson is Head of Retail at KPMG

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