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Mix-Ansicht- Guten Morgen. Ist Umsatz alles? Die Furehstueckslektuere. - XERXES, 19.03.2002, 08:07
Guten Morgen. Ist Umsatz alles? Die Furehstueckslektuere.
Let's make a deal
Continued discounts pull in customers but hurt bottom line
By Frank Green
UNION-TRIBUNE STAFF WRITER
March 16, 2002
Many retailers that initiated deep discounting strategies after Sept. 11 to spur dismal sales are still wheeling and dealing.
You can see the bargain-basement pricing these days everywhere you turn at area malls, where chains like Robinsons-May, Macy's, Kay-Bee Toys, as well as many small businesses, are offering such unlikely lures as 2-for-1 sales and up to 80 percent off on clearance items.
Jerome's and other furniture stores likewise are moving out dinettes and futons with 12-months-same-as-cash financing, while some are advertising deferred-payment plans good into 2003.
And zero-percent financing - which many analysts predicted would be a short-lived promotion last fall - remains alive and well at Ford, General Motors, Saturn and other car dealerships, although with tighter restrictions.
"It's a very strong customer incentive, like free money," said Darrel Nagler, sales manager at Guaranty Chevrolet in Mission Valley.
Nagler noted that when the zero-percent program was lifted by GM for several weeks after the holidays, sales at the dealership dipped.
"Consumers are a lot more educated now" about shopping for good deals, he added.
All of the ongoing price-slashing has to do with keeping customers in a buying mood as the country begins to lift itself out of a recession and as memories of the terrorist attacks slowly fade.
So far, the strategy has worked - at least for consumers - spurring a buying binge in the midst of economic uncertainty.
However, the discounting, which has also been exacerbated in some retail sectors by Wal-Mart, Target and other discounters, has hardly been a stimulus for most retailers' bottom lines.
"Many of these companies can't maintain profitability with all the price cutting," said George Belch, chair of the Marketing Department at San Diego State University."They are pushing down their margins to razor-thin levels."
For instance, chains like Talbots, The Gap and San Diego-based Factory 2-U recently reported weak sales during the last several months due partly to the discounting frenzy.
"Our margins were negatively impacted as a result of heavy markdown volume related to promotional events during Christmas and earlier liquidation of merchandise this year than a year ago," Mike Searles, Factory 2-U's president and chief executive officer, said late last month in announcing a fourth-quarter net loss for the company of $8.9 million.
Some analysts worry that consumers - who have grown accustomed to seeing 50-percent-off signs everywhere - will force retailers into a perennial sales mode.
"The retail environment is such today that discounting has become a permanent way of life," said George Whalin, president of Retail Management Consultants in San Marcos."When you train your customers to buy at discount, it's very difficult to break their habit."
The economy was already faltering when the Sept. 11 attacks occurred and consumer spending - which accounts for more than two-thirds of the U.S. economy - went into free-fall.
President Bush and other politicians subsequently rallied shoppers to hit the malls as a sign of patriotism.
Now, even though many economists say the end is near for the mildest recession in U.S. history, consumer spending remains critical.
That's because capital spending by businesses still looks weak.
According to Thomson Financial/First Call, earnings for major corporations slid 23.6 percent in the fourth quarter of 2001 compared with a year earlier.
But there are signs of a turnaround.
"Demand is coming back far more quickly than anyone had expected," chief economist Bruce Steinberg has told clients.
America's airlines and automakers jumped in early with incentives last year as the economy cooled and post-Sept. 11 jitters persisted.
Zero-percent financing fueled record sales. But some automakers still struggled. Ford Motor Co. lost $5.07 billion in the fourth quarter of 2001.
Cheap fares also showed up in red ink in airlines' fourth-quarter results.
United Airlines' parent, UAL Corp., charged the highest average fare among big carriers - about $189 - yet lost $58 on the average ticket.
On the consumer side, debt accumulation also raises the prospect of trouble down the road - especially if employment or income growth is sluggish.
"An immediate benefit can be a long-term detriment," said Bettye Banks, senior vice president at Consumer Credit Counseling Service of Greater Dallas.
During the last 25 years, Banks has seen many shopping hangovers.
"They make an assumption, which is not always a valid one, that when the full bill comes due, they will have the money," she said.
It's already evident that affordable borrowing has not meant better debt management for all consumers.
Indeed, personal nonbusiness bankruptcy filings hit 354,908 in the fourth quarter, the highest level since 1994.
There is also the possibility that consumers may simply be all shopped out.
After all, people need or even want only so many washers and cars.
"After spending throughout the late 1990s until they dropped, and after spending through the recession at a surprisingly high rate, consumers now have a full cupboard," said Thomson Financial/First Call analysts.
Thus, many retailers will probably be forced to increase market share by stealing customers from competitors via ongoing discounting programs, said SDSU's George Belch.
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