On Black Friday, retailers will promote discounted clothes, TVs and laptops to excited consumers, with sales of 40 percent or more. But what qualifies as a real “sale” can be misleading.
The retailer and manufacturer may have together marked a price that they are never expecting an item to fetch. For example, a sweater may list at $60, but the store and the garment maker may have already agreed to sell it for $40, said Burt Flickinger, III, managing director for Strategic Resource Group, a retail consulting firm.
When a store sells the sweater for $20 off, consumers may think they are getting a great deal, Flickinger said. Some shoppers might assume that the stores aren't making much money, when in reality, the retailer and the manufacturer aren't sacrificing their profits.
"You'll definitely see some of the strategy in place for Black Friday," Flickinger said.
This strategy, recently reported by the Wall Street Journal, has been used at discount stores, specialty stores and mid-tier department stores, Flickinger said. Retailers know that consumers love a good sale, and those discounts can be key to drawing them into the stores.
“Shoppers are really demanding discounts of at least 40 to 50 percent,” Flickinger said.
Stores that feature everyday discounts often end up losing, says Ira Kalb, an assistant professor of clinical marketing at USC, because there's there's nothing pressuring the consumer to buy now.
"Consumers love a good deal and what tells them it's a good deal is when the price tag on the product is higher than what they have to pay for it," Kalb said.
The pricing strategy may modestly help retailers during the holiday shopping season. The National Retail Federation expects holiday sales will increase 3.9 percent to $602.1 billion this year, but some analysts, like Britt Beemer of America’s Research Group, are less optimistic. Beemer says sales for retailers will increase by around 2.5 percent, because consumers are still concerned about the changes in health care and unemployment.
A good deal?
Even though retailers may not intend to sell items at originally marked prices, federal and state statutes require stores to offer items at orginal prices for a period of time that can range from a few weeks to a few months but, Flickinger said, there is a problem enforcing those laws.
Flickinger said retailers generally realize an average percent profit margin of 28 percent on items, although on apparel, it can be as high as 40 to 50 percent. Even though they may be planning the “sale” far in advance, it doesn’t mean consumers won’t be getting a good deal. Flickinger said cotton prices have dropped, so shoppers may actually spend less on apparel that’s on “sale."
Consumers should check prices online, mobile apps and comparison shop to make sure they are getting a good deal, Flickinger said.