I am a sale shopper, taught at an early age by my mother and aunts to look for bargains. We needed to get the most value and style for our relatively limited means, but I soon became drawn by the sport of it. Why pay more for what you want, when you can pay less?
I belong squarely in that segment of shoppers who do not want to pay full price for anything. Fortunately, there are so many sale shopping options today that I can almost always get what I want for at least 50%, if not 75%, off the full retail price. Just googling “sale shopping” yields nearly 2 billion results – and that doesn’t even include eBay. When I came of age there were only a few ways to get a good bargain. One was to wait for the semiannual department store sales.Yes, there were only two: one right after Christmas (and before retail inventory season), and the other after Easter or Mother’s Day. If you had connections, you could also try to “get it wholesale.” That meant if an item cost $75.00 you could get it for $37.50. Occasionally, if your connections to the manufacturer were particularly good, or, if you were a sample size, you might get the item for the wholesaler’s cost which would be about $18.75, or 75% less than full price.
There were also manufacturer’s outlet stores. These were ‘real’ outlet stores, filled with goods that were actually manufacturer overruns or mistakes, not outlet stores filled with merchandise made exclusively for outlet stores. There were also off-pricers like Loehmann’s, the cathedral of deals in the Bronx, with its legendary community dressing rooms where you could buy a Bill Blass or Calvin Klein (when those were actual designer clothes, not licensedbrands) for about one third the retail price. And, there was the original Filene’s Basement located in downtown Boston. I can remember the excitement I felt when I made my first trip there.
Retailing, manufacturing and pricing have changed dramatically since I learned to shop in the late 70s and early 80s, but the inherent customer behavior, quest for value, and ability to get more for less have not. And now, customers have been trained by retailers to expect value and sale prices every day, and to shop accordingly. Consumers today range from the most predatory sale shoppers who insist on a bargain to those who may sacrifice some savings for more convenience, prestige or other variables. There are also many more retail choices for consumers. Too many options in fact, allowing consumers to buy whatever they want for the price they want to pay. Every retail channel – whether department store, warehouse clubs and every one in between, has its own pricing and promotional strategy, and customers know what it is. It is no surprise that Costco and TJX are among the best performing retailers today. They are purveying the perception of a better deal for their customers and delivering it consistently.
Despite the economic recovery, many consumers remain financially pressed. Job growth is sluggish, housing prices are depressed, and many non-discretionary items like food and energy are relatively expensive. A recent consumer survey described in Women’s Wear Daily indicated that 75% of women said “it’s important to get the lowest price on everything,” 68% “regularly use coupons,” 45% “only buy on sale,” and 43% “search online for discounts” before they shop.
With a couple of notable exceptions, retailers are promoting more regularly than ever and have trained customers to buy on sale or to use coupons and other promotions to get the price they want to pay. It’s like retail heroin. The weekly circular is like crack cocaine. Both retailers and customers are addicted to the process.
How can this situation be changed? Or, more importantly, should it? And, what are the consequences of trying to change the situation, as JCPenney has done recently?
Retailing goes back at least to the 5th Century B.C.E. when the agora, in ancient Greece, was the gathering place or assembly. It was also the marketplace, where merchants kept stalls to sell their goods. The agora serves a basic need. People need stuff. But the agora also serves a deeper human need for community. From earliest times there were buyers and sellers who congregated in the agora and negotiated a fair price for goods. Commerce, buying, selling, trading – all are basic human activities. Perhaps eBay is the largest agora ever. Anyone anywhere can buy or sell pretty much anything they want in this cyber agora, and, with a few clicks of the mouse negotiate the price they want to pay to effect the transaction. Is getting the lowest possible price an inherent aspect of the behavior or essential to the transaction? Not necessarily. But, the expectation of a fair exchange between the buyer and the seller is. The seller wants to earn a fair profit from her end of the transaction. The buyer wants to pay the price that she believes the product is worth to her. The value proposition is fluid based on the customer’s expectation of value for every given transaction. The more choices the customer has, the greater the price elasticity for every purchase.
Now Penney has come along and wants to trade its previously heavily promoted sale strategy for a new ‘fair and square’ pricing model that will purportedly bring better value to customers and hopefully better profits for Penney.
As if to underscore the rationality or the fairness of the pricing strategy, or, to make it seem simpler or sound cleaner, or, who knows why, Penney has dropped the 99 cent, or 99 dollar, price ending that almost all retailers use, whether consciously or subconsciously, to signal value, a bargain or a good deal. At Penney, items will now be priced at $10.00, not at $9.99. Note that Apple, the leader in sales per square foot among retailers, uses the 99 model:” Apple iPad from $399,” “Mac Book Air from $999”, iMac from $1199,” etc. Tiffany, the retailer with the second highest sales per square foot, is one of the only major retailers whose prices are expressed in hundreds, fifties and, of course, thousands: $200, $250, $10,000. Costco is all about 99 pricing although savings “you save $200” are expressed zero digit numbers.
Now JCP must reeducate the customer and explain the difference between its new pricing and promotional strategy and the old. Essentially Penney is conducting a retail intervention, a detoxification and rehabilitation from the previously mentioned retail heroin of weekly promotions to the new, clean ‘Fair and Square’ strategy. Right now the customer is getting the news with an expensive, well produced and fairly entertaining advertising and publicity featuring Ellen DeGeneres. The next step will be to get the customer to change her behavior. Live clean, shop when she wants and find the price she wants whenever she goes to Penney.
Good luck. Well, there will be a catalogue every month featuring “deals on what you want now.” And my guess is there will be television ads supporting those deals. But, advertising, and no doubt it will be good advertising, will still have to be used to tell the customer what is going to be in the store. And it will have to get her to go there, instead of to another retailer where she can buy much of the same stuff, some of it deeply discounted, at Macy’s, TJ Maxx or countless other stores.
Time will tell how well the new JCP pricing and promotional strategy will work. Overall it is a multifaceted endeavor which includes new store prototypes and the promise of a more engaging shopping experience and some more exclusive merchandise. Ron Johnson is changing the rules internally at Penney as well. Perhaps not as drastically as in 1987 when Penney left New York for Texas and stopped selling refrigerators, but a big leap nonetheless.
A friend who manages a large Wall Street fund and has followed retail over the course of a successful forty year career responded to my question about his opinion of Penney’s new strategy: “I’d rather buy Kohl and short Penney. Customers like a sale.” The question is not will the change in its promotional strategy work for JCP as it continues to evolve into a revitalized 21st Century retailer, but, will it work for the customer? Will she begin to rely on Penney for her anytime/all the time needs and shop there more often? Will it become her favorite store, as Ron Johnson hopes? Or, will she continue to cherry pick competing shopping options for the best deal (either because she has to or wants to)?
Because for some customers, like me, buying on sale is in the genes. And it makes shopping so much more fun.