5 Kinds of Stores Discounting Deeply
Summer has just started, but retailers are already feeling the heat.
Clothiers, restaurants and other vendors are wilting – and cutting prices – as they struggle to cope with a slowdown in consumer spending. The upshot for customers is a slew of deals across a variety of sectors.
For many stores, the situation is grim. The personal savings rate hit 6.9% in May, its highest level in more than 15 years and up from close to zero in early 2008, according to the Commerce Department. At the same time, a steady rise in the unemployment rate is putting downward pressure on consumer confidence; the Consumer Confidence Index stood at 49.3 in June, down from 54.8 in May, according to the Conference Board.
The combination of tighter wallets and lower confidence is creating a huge challenge for retailers, says Mike Gatti, the executive director at the Retail Advertising and Marketing Association, a trade group that tracks company advertising and marketing strategies. Since the beginning of this year, consumers have focused on necessities like groceries and on value, he says.
Almost every sector has been hit hard, and retailers are responding by printing coupons, slashing prices and pairing up with high-quality brands on deals exclusive to their stores, Gatti says. For example, Kohl’s (KSS: 43.82*, +1.10, +2.57%) sells a Vera Wang summer clothing line. Other retailers are sticking to traditional sales, like back-to-school summer deals, which typically begin in late July, says Kathy Grannis, a spokeswoman for the National Retail Federation, a trade group that tracks seller and consumer behavior.
Here are the five retail sectors that have been hit the hardest and a few ways to take advantage of their discounted pricing.
Retail sales: $52.1 billion in March, down from $70.3 billion a year ago.
The auto industry has experienced the biggest decline in sales during the past year, according to the Commerce Department. Many consumers remain wary of purchasing a car for fear of missing payments if they lose their jobs, says Ron Stampfl, a marketing professor at San Diego State University.
Some dealers are attempting to boost sales by removing some of the risk associated with purchasing a car during a period of high unemployment. Hyundai’s Assurance program, which launched in January, lets customers return their new car if they lose their job and absolves them of up to $7,500 of negative equity, the difference between what you owe on a car and its worth. (Ford (F: 5.68*, -0.04, -0.69%) and Saturn have also offered similar deals.)
It’s no secret the sector is hurting. Chrysler projects the U.S. industry will sell fewer than 10 million new cars this year – the fewest since 1986, says Kathy Graham, a spokeswoman for the firm. Chrysler, which emerged from bankruptcy on June 10, sold 66,324 vehicles in June, down 16% from the year-ago period. The firm’s July incentives include 0% financing for 60 months on select 2009 models or up to $4,000 in cash back.
Current Chrysler owners are eligible for up to $1,000 cash back when they purchase select 2008 and 2009 models. Because Chrysler didn’t produce new vehicles in May and June, inventory on several models – including Jeep Wranglers and Chrysler Sebring convertibles – is down, so consumers may not find the exact model they hope for, Graham says.
Retail sales: $7.7 billion in March, down from $8.8 billion a year ago.
Home furnishings are in a slump right now primarily because fewer people are buying new homes, says Jeff Green, the president of Mill Valley, Calif.-based Jeff Green Partners, a retail consulting firm. Those who are staying put are paying off their mortgages, not upgrading their decor, he says.
That leaves traditional furniture stores in a sticky situation. Earlier this year, Z Gallerie and Fortunoff went into bankruptcy. To boost sales and move inventory, other furniture stores are offering steep discounts ranging between 50% and 70% off, Green says.
Pier 1 (PIR: 1.90*, +0.09, +4.97%) remains committed to the summer sales strategy it’s used for several years, says Kelly Keenum, a spokeswoman for the company. “We recognize that more than ever customers are looking for deals,” she says. But the store’s summer sale isn’t new and hasn’t been altered because of current economic conditions, she says.
At Pier 1 more than 1,000 items are selling at up to 50% off sticker price. A curved-back counter stool is selling for $60, down from $149, and an ornate wooden storage box sells for $100, down from $150. At Crate & Barrel, a veranda arm chair and side table sell for $139 and $50, respectively, down from $216 and $100.
Retail sales: $16.3 billion in March, down from $17.8 billion a year ago.
Department stores have been hit especially hard in the past year, Green says. Two regional department store chains have liquidated in the past eight months: Gottschalks and Mervyn’s.
In a way, these stores were doomed before their announcements. Consumers perceive department stores to sport higher prices than discount chains like TJ Maxx (TJX: 33.03*, +1.15, +3.60%) and Marshalls, junior department stores like Kohl’s and J.C. Penney (JCP: 26.58*, +0.31, +1.18%) and the big-box chains like Wal-Mart (WMT: 47.80*, +0.23, +0.48%), Target (TGT: 38.34*, +0.54, +1.42%) and Kmart, Green says.
Macy’s (M: 10.66*, +0.05, +0.47%) projects its same-store sales to drop between 6% and 8% in 2009, says Jim Sluzewski, a company spokesman. Last year, total sales at Macy’s came in at $25 billion. The company’s main promotional strategy, which includes coupons and discounts, has been in place since before the economic downturn, he says. The chain’s response to the downturn has been to offer more “everyday value prices,” which means that the merchandise hits the racks at the lowest price the retailer is willing to go, rather than starting higher and then being discounted, he says.
Women’s clothing stores have seen sales slide by about $400 million between February 2008 and February 2009, according to the latest data from the Commerce Department. As household budgets tighten, more women are focusing on groceries and their children’s needs, Green says. During the last year, women’s retailers including Talbots (TLB: 3.88*, +0.07, +1.83%) and Ann Taylor (ANN: 7.21*, +0.10, +1.40%) each saw their sales fall by at least 10%.
If stores are still flush with summer inventory by early August (the end of the retail summer cycle), expect 25% to 50% discounts, Green says.
At Macy’s, a women’s Tommy Hilfiger coat sells for $91, down from $182, and a men’s Ralph Lauren cotton suit is down to $299 from $495. J.C. Penney’s “Christmas in July” sale features 40% to 60% discounts on jewelry and an additional 10% discount online, leaving a pair of 18-karat gold earrings at $53, down from $169. Ann Taylor’s semi-annual sale features discounts of up to 60% off apparel, including tops starting at $13.
Retail sales: $7.8 billion in March, down from $8.7 billion a year ago.
Even after Circuit City’s liquidation earlier this year, there is still competition in the consumer electronics sector among national chains like Best Buy (BBY: 34.15*, +1.38, +4.21%), online retailers like Amazon.com (AMZN: 81.47*, +3.84, +4.94%) and manufacturers like Dell (DELL: 13.02*, -0.20, -1.51%) and Apple (AAPL: 142.34*, +3.82, +2.75%).
Amazon is offering discounts of up to 40% on a variety of consumer electronics. A Samsung 52-inch LCD
HDTV is selling for $1,700, a 15% discount, and Denon headphones are selling for $427, 39% below the usual price.
This week, Dell is offering savings of $50 to $234 on its laptops. The Inspiron 15 laptop is selling for $399, down from an original price of $449, and the Studio 15 is selling for $649, down from $854.
Hewlett-Packard (HPQ: 37.28*, +0.04, +0.10%) is offering rebates of $75 to $300 throughout the summer on its desktops. Until July 7, HP is offering a discount of upwards of $400 on the Pavilion p6150t series.
Retail sales: $15.63 billion in February, down from $15.69 billion a year ago.
More consumers are passing on full-service restaurants, downgrading to fast food or home-cooked meals, Stampfl says. As a result, restaurants are promoting lower prices and value meals at fixed low prices, Green says.
For example, Applebee’s 2-for-$20 deal, includes one appetizer and two entrees. Outback Steakhouse introduced a new menu in February with 15 meals under $15, including a six-ounce sirloin steak with grilled shrimp and a baked potato.