Deck the halls, cheaply!

Discounting is fine until it becomes the defining strategy. This Christmas, top retailers risk having pricing terms dictated to them.

Shoppers have come to demand discounting. Reports from the US suggest retailers will be forced to cut prices to please shoppers, who are planning to splash less cash this Christmas period compared with last year despite disposable income inching higher for the fourth year in a row.

While discounting is often the ideal way for retailers to move snippets of stock or less popular items, it is problematic if it is the entire strategy. Retailers budget for discounting, but could very well be in the position of having terms dictated.

Although consumer sentiment rose again this month, getting shop keepers and the market excited for a bumper Christmas spend, domestic retailers could be in for a false start. Historically, consumer sentiment and spending have been correlated. However, the expected extent of discounting will likely have some impact on just how much consumers will in fact splash out over the holiday period.

Adding to this is the financial climate facing Australian consumers. Currently conditions aren’t conducive to spending excessive amounts this Christmas – wage and credit growth is negligible and it doesn’t look like changing in the near future. Simply put, we don’t feel we have the dollars to spend even at a time when we should apparently feel wealthier due to a rise in house prices.

September-quarter sales at major retailers were largely positive, even beating initial expectations in some cases. The market responded in kind to the numbers, sending department stores David Jones and Myer marching higher. This Christmas, the Australian Retailers Association has estimated department store sales will increase 1.2 per cent – nothing to shoot the lights out.

Considering the difficulties retailers have faced over the past few years, any driver of sales growth is certainly welcomed. The problem for retailers forced to move goods through heavy discounting, is the dent to profit margins, which could be the bearer of bad news for investors when half-yearly sales figures are announced early next year.

For traditional department store retailers, namely David Jones and Myer, the Christmas period will provide an indication to how the new omni channel strategy is progressing. It has been estimated Myer’s online store is currently posting a loss and is not expected to breakeven until toward the end of this financial year.

The omni-channel strategies pursued by both David Jones and Myer is a bid to pinch shoppers where they can but if consumers aren’t prepared to dig deeper and spend more, even the best strategies will offer little upside to the bottom line.