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Study: Always-on discount culture causing retailers stress

Some 53% of UK retailers say the change in industry dynamics that has seen sales and discounts sometimes becoming a year-round phenomenon is impacting profit, according to a new survey by payments company Klarna.

The survey found that 11% of the 500 participating retailers calculated the cost of increased discounting activity at over £25,000 throughout 2017.

Retailers with 100-239 employees apparently feel the burden most, with 66% saying constant discounts are impacting their profits. Some 56% of retailers indicated that the majority of their discounted transactions come from online trade.

Luke Griffiths, managing director at Klarna UK, commented: “Discounting can be a significant source of stress for retailers of all sizes – from the impact on profits to the operational difficulties that come with managing sales activity.

“Many merchants will discount to shift unwanted stock, so part of the solution is to make better, more educated purchasing decisions.”

He added that retailers can win over consumers without slashing prices, and focus on “perfecting the customer journey”.

Klarna also surveyed consumers to discover the psychology behind their attitudes towards discounting and how it influences their buying behaviour. A total of 18% of respondents said they only shop when there is a sale on – with younger generations more likely to wait for prices to drop before making a purchase.

However, 28% of shoppers said sales are too stressful and they avoid them altogether, which suggests there are other key factors – not just price – consumers consider before parting with their cash.

Andy Mulcahy, strategy & insight director at IMRG, the UK’s industry association for online retail, remarked: “In recent years, events such as Black Friday have instilled in shoppers’ minds the idea that there are times of year when desirable product ranges – as distinct from the excess stock that is typically reduced to clear during seasonal sales periods – will have their prices slashed.

“The impact of this was particularly apparent in October 2017, when heavy discounts were already available across multiple retailers, as they tried to stimulate activity among shoppers who were holding out for Black Friday.”

Retailers such as H&M and Fat Face have recently explained how their approach to discounting has impacted sales, but for very different reasons. H&M warned last month that excess stock is causing longer-than-average sales periods, which is impacting the bottom line, while Fat Face said its move to steadfastly keep products at full price is a driving force behind its current positive financial performance.

Mulcahy added: “Getting the basics right – selling items that genuinely appeal to the target demographic, optimising areas of the experience, providing leading service – remains the most effective method for increasing sales in a way that is far less reliant on discounting.”

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