Posts Tagged ‘recession’

One of this blog’s readers, Paula from San Francisco sent her recent shopping experience to me.  ”Today I spilled coffee all over my top and decided to run over to the mall to see if I could find a replacement.  My goal was to find a sweater in a basic style, color, not wool (I’m allergic), that fit me , cost less than $90, and that I didn’t hate.  And I only had 45 minutes to do it.

First stop was Macy’s.  I wandered around for 10 minutes or so in the higher-end sections to no avail, before spotting a 25% off rack in the petites section.  At the nearest counter I asked where Charter Club was for regular sizes, but was told that they’d all been “moved to a store at another mall to make room for coats.” There was no followup inquiry as to what I was looking for.  Clearly they didn’t want my business.
 
So I left Macy’s, now really pressed for time, and went into the next clothing store I came to, Chico’s. In about 30 seconds a salesperson approached, asked me what I was looking for, suggested I try on a sweater I was carrying around, brought me a different size, pointed out a couple of other possibilities.  I decided I liked the sweater, and asked her if they had some plain black tops.  She pointed them out, noted that they were buy one, get one half off.  I tried on the top, picked out another one in a different color, the salesperson cut the tags off the top and the sweater, put my coffee stained ones in a bag, and I was on my way and back at the independent bookstore I work at with a couple of minutes to spare.
 
So, that’s a pretty straightforward tale of two chainstores.  But, there’s something that keeps bothering me about it.
 
The two tops I bought were priced at $32 each, and the sweater was $88, for a total of $158 .  With the buy one, get one half off promotion the tops came to $48.  The salesperson found me in their database from previous purchases, and somehow because of that I was eligible for a 50% discount on one item, which she applied to the sweater.  So my total was $92, a 42% reduction from the list price.
 
Naturally, I liked paying less.  But how can Chico’s make any money on that?  I had no problem with paying $88 for the sweater.  

42% off would be our entire margin where I work.  If you’re discounting that heavily how do you pay your employees and your rent?  I saw a list somewhere on 10 Retailers That Could Fail, and Chico’s was on them.  It made me sad to think that they could go away.”

Thanks for writing Paula!  Two points come to mind. #1 service can drive sales more than promotions. #2 well meaning employees will discount at the drop of a hat.

Paula’s experience showed the difference between these two stores.  Macy’s knew why the sweaters weren’t there, Chico’s helped her find more than one item but Paula’s surprise discount was used improperly to lower sales rather than boost them. 

We are going to see a lot of red ink in the next few months from major retailers whose CFO said to their CMO, “We’re in a recession now.  We’ve got to do something to bring them in – anything.”  But sales without profits can be worse than no sales. And crew members not trained to maximize profits can hurt as much or more than the discounts.

An article in today’s Wall Street Journal talked about Neiman Marcus, “Gross margin fell to 37.3% from 41.1% due to markdowns, as the company continues to pare inventory. Neiman said it sees higher markdowns putting pressure on margins in its fiscal second quarter.”

My next post will be on why employees discount. Stay tuned!