Holiday promotions cut into retail profits
The 2011 holiday season proved to be even bigger than the previous year, but retailer gains may have missed their potential due to incessant price-cutting strategies employed by merchants as they tried to drive more customers into stores.
Overall, retail sales were up 3.4 percent at the 22 retailers tracked by Thomson Reuters, beating the 3.3 percent forecast by industry analysts. However, Alison Paul – a retail sector leader at Deloitte in Chicago – noted that promotion and discount usage affected the overall profitability at a number of retail merchants, with several reducing their earnings outlooks in response.
It all comes down to proper retail brand management. Businesses that planned their holiday promotions in advance and spread them throughout the two-month holiday period were able to perform up to expectations, while those that didn't suffered. In particular, those that pulled out all the stops for Black Friday weekend had difficulty generating attention for the remainder of the season.
"The retailers that are still standing are the ones that did their homework several months ago and made decisions about promoting in waves," Paul told Bloomberg. "Getting promotions right is an art form."
Some major retail names were saddled with holiday losses. For example, Aeropostale posted a 10 percent drop off in same-store sales, while total revenue declined 5 percent. Gap reported similar losses across its entire chain – including Old Navy and Banana Republic – with sales declining 4 percent.
"We expected December to be highly promotional, and while we competed aggressively across our brands, our performance was below our expectations," Gap chief executive Glenn Murphy added.
On the flip side, several brands enjoyed big success. Limited Brands – the parent company of Bath and Body Works and Victoria's Secret – saw a sales jump of 7 percent. Meanwhile, Hot Topic and The Buckle observed 1.2 percent and 5 percent improvements, respectively.
If retailers struggled to capitalize on the 2011 holiday season, it's crucial they learn from their mistakes as they develop their marketing campaigns for the new year. Merchants should remember to take the bottom line into consideration as they plan promotional events and give customers discounts.
