Farewell to deep discounting? I don’t think so…

The following comment from RetailWire was triggered by a Washington Post article about stores’ promotional cadence. The premise of the article: The “glory days” of 40% off discounts (and more) are over. I’m not seeing it:

I agree that retailers need to do brand-building on the basis of merchandise content, customer service and loyalty marketing (benefit-driven, not price-driven). But I don’t see much evidence to back up the Washington Post premise that stores’ promotional cadence is losing any steam. Judging from our mailbox and e-mail offers, there are plenty of retailers (Macy’s, Kohl’s, Penney and just about any specialty store you can name) continuing to drive promotional sales with extra coupons on top of other sale offers.

There are two bigger questions that retailers need to grapple with: First, is price a sustainable loyalty driver? (I’d argue “no,” because somebody can always beat you on price.) Second, does the store’s expense structure provide enough breathing room for the promotional impact on gross margins?

The recent results of JCP and Kohl’s provide a good contrast: Both operate with a similar promotional cadence and both stores’ gross margins are in the same ballpark, too. The difference is that Kohl’s has a far leaner expense structure than Penney and delivers a better operating profit as a result. So the real “sustainability” question surrounding discounting comes down to whether a store’s overall operating discipline can support it.

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