Discounting dilemmas: prepping for holiday sales season

As we enter the most lucrative period for many retail businesses, can brands really afford to cut profit margins during a time of global economic crisis?
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Black Friday fires the starting gun for the race to Christmas. Some make as much money in this short holiday season as they do for the entire rest of the year. But, with economic headwinds being faced by businesses as well as shoppers, is it really profitable to enter this year's sales season? 

The case for discounting

Times are tough and household budgets are being squeezed. Acknowledging that and offering a discount is a sure-fire way to show you understand the economic challenges people are facing.

It's also the norm now. ‘Most brands are aware they're stuck on some sort of promotional treadmill [and] you have to be quite courageous to get off it,’ says Bryan Roberts, a retail analyst. ‘There's an element of keeping up with the Joneses about it.’

Bryan points out that discounting may be an important way to stimulate sluggish demand for discretionary items at a time when disposable incomes are low. 

The case against discounting

Just because Black Friday dominates the discourse and Amazon is increasing its grip on retail sales, it doesn't mean you have to take part. In fact, some brands make a virtue of not doing so. ‘We've always been the anti-Black-Friday brand,’ says Charlie Vickery, managing director at natural skincare brand Haeckels

Instead of discounting products for Black Friday, Haeckels instead runs a barter day, where customers are encouraged to come in and offer a trade for their products. ‘The idea was to try to set up that sort of barter economy, where everybody is appreciative of the cost of manufacturing and the cost of goods,’ Charlie says.

What's likely to happen

Despite this, Charlie believes his business will be in the minority when it comes to this particular holiday season. ‘This year, I think there'll be a bloodbath of discounts,’ he says, expecting that brands will try to meet customers halfway given the pressures on their household finances.

But brands should think deeply about why they're offering discounts in the first place. ‘I'll never do a sale,’ Charlie says, ‘because if you've got the luxury of being able to take 20% off your products and still make a profit then, at the end of the day, you're creating this problem.’

By setting the expectation for seasonal discounts, you're poisoning the well for other companies, who appear to be uncharitable for not offering money off, even if they can't afford to do so. It's a vicious cycle, Charlie says. ‘If you take 20% off, you'll have a 60% lift on the week's sales.’ That sounds great on the surface but, when customers get used to lower price points, there's a lot less room to maneuver.

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