The 2009 markdown story is a tale stretching over two years.
This story first appeared in the December 14, 2009 issue of WWD. Subscribe Today.
It begins in October 2008, when Lehman Brothers and the economy collapsed and retailers found themselves with far fewer shoppers and desperate to clear inventories. “The misalignment between supply and demand was probably never more pronounced,” said Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates.
The imbalance and clearances dragged on through summer 2009, and price cutting was wild. However, by fall, inventories were sufficiently reduced, enabling retailers to return to what they call a “normalized markdown cadence,” meaning markdowns would be taken later, in line with the schedules of 2007 and years prior, and attached to fewer products at narrower discounts.
But the big question lingered: would retailers really ever be able to get consumers back to buying at regular price? They said it was imperative and to do it soon.
“We have got to get back to selling at regular price,” stated Karen Katz, chief executive officer of Neiman Marcus Stores at the WWD CEO Summit in November. “The world has changed, and yet in our business model, the only way we can do business is by getting a full season of regular-price selling. We’ve got to stop these markdown cycles, and we’ve got to start weaning the customer off the deal of the day. We’ll hope that this holiday season, the customer is back and that she wants great service, that she wants great gift items. We can’t go back to the way it was. It was just craziness.”
As far as winning the battle to get consumers to shop full-price, there’s some progress but no one is claiming victory yet. “It is clearly a work in progress. We won’t know the final results until we get through the remainder of the year,” said Neiman Marcus Group chairman and ceo Burt Tansky.
Through the 2009 holiday season, retailers, in fact, continued to be promotional via “friends and family” and “one-day only” events and “buy-one, get-one” deals, though the price promoting was less cacophonous and not knee-jerk compared with earlier in the year and 2008. “I don’t think anyone has to be concerned, at least from us, about any abnormal events in the fourth quarter,” Ron Frasch, Saks’ president and chief merchandising officer, said at the WWD CEO Summit.
Fall promoting was cool, collected and under control. Contingency promotions, planned tightly with vendors, were in place with beefed-up strategies for channel integration and interactive marketing and some novel turns. Saks Fifth Avenue, for example, successfully tested a running clock counting down how much time remained for a sale. Ann Taylor and other stores had time-sensitive deals as well, creating a sense of urgency to shop or miss a bargain.
Macy’s openly acknowledged getting aggressive on price. “They’re sharper than a year ago,” said Macy’s chairman, president and ceo Terry Lundgren, though he added he was pleased how the company was managing its inventories and margins.
Despite a Black Friday weekend that was OK, American chain-store sales for November overall were down 0.3 percent on a year-over-year same-store basis, marking “a disappointing reversal in the pace of sales after two consecutive monthly gains,” according to the International Council of Shopping Centers and its chief economist and director of research, Michael P. Niemira.
“The holiday season got off to a weak start in November for retailers, as early-month sales of apparel and seasonal items suffered because of warmer-than-normal weather — though the tail end of the month saw relatively strong sales over the post-Thanksgiving period,” Niemira said.
This month, ICSC expects sales will increase by 2 to 3 percent from last year as consumers are buying holiday gifts later in the season, and will be up 1 percent for the November-December holiday period.
As far as markdowns industrywide, Jennifer Black, president of Jennifer Black & Associates said: “They’re not as deep as last year. Retailers planned into them.” And generally, they have contingencies, “so if business doesn’t pan out, they move to the next plan.”
“At least the inventories are in line and retailers have been able to reestablish the tradition in terms of the timing of price breaks and how deep the markdowns are,” Aronson said.
Looking ahead, he added, “My sense is that the price breaks will continue in line with traditional levels. I don’t see retailers going into hysteria. The markdowns will be more measured, and retailers will be able to get out of the inventories in a fairly disciplined way. Some of the promotions this year have been engineered promotions, pre-planned. Markdowns were already built into the initial prices, to try to insure reasonable margins.”