Retailers scramble for sales with early discounts

NEW YORK —The JCPenney circular beams ‘Hottest Sale of the Season’ and promises to save 40% to 50% on swimwear and 50% to 60% on men’s and young men’s shorts. Kohl’s offers 60% to 80% in its gold star clearance section. Sears lures with its ‘Buy More, Save More’ (on lawn and garden) discounts.

When the word sale is more prominent than the actual name of the retailer, it’s clear that discounting has taken the reigns. The no-brainer factor to heavy promotions is the economy that’s tightening its grasp on both consumers and retailers alike. According to Nielsen reports, 35% of customers consider the economy their biggest concern over the next six months. Consequently, many wait for sales before embarking on a shopping spree, yet only 17% plan to use their rebate checks on clothes.

Bad economy is not the only culprit, however. “The wet spring combined with the economy spells bad news in regard to inventory,” said Stacy Janiak, vice chairman and national retail leader at Deloitte Research. “Annual sales moved up a week or two earlier than we would normally see.”

Even though retailers can’t predict the weather, they can steal consumers’ attention by going back to basics and focusing efforts on the mid-price accessories movement—items that easily spruce up a wardrobe. To avoid deep discounting, retailers need to carefully analyze how to stock shelves in terms of fashion-forward merchandise as opposed to just the basics, added Janiak.

Rain, clouds and the cranky economy shouldn’t take all the blame for mid-tier department stores not doing as well. Some companies are not as astutely operated as others, said Craig Johnson, president of Customer Growth Partners, a retail consulting firm in New Canaan, Conn. Sears is bleeding market share, he said; Macy’s, JCPenney and Dillard’s are challenged too.

As the first quarter reports show, Sears is having the worst time—earnings fell close to 90% from last year, likely a result of inventory surplus. The retailer stated that same-store sales also sunk in apparel, home appliances and lawn and garden categories.

Even with a net loss of $56 million, Sears and Kmart continue to reel off sale promotions like friends and family discounts, Midnight Madness offers online and a 10% increase to rebate-gift card transfers. In an effort to attract shoppers, Sears hopes that customers will bring in tax rebates in exchange for a gift card that can be used at Sears, Kmart, Lands’ End stores and online at Sears.com or LandsEnd.com . The promotion is set to run between May 14 and July 19.

“The economy is infused with rebate checks,” said Scott Krugman, a spokesman at NRF. “Sears and grocery stores like Kroger are saying, ‘We are going to stretch your rebate check further than you thought.’”

Will it work? Or will Sears Holdings end up with higher merchandise piles? Only time will tell.

Though JCPenney is fairing better, first-quarter total sales dipped 5.1%, as did comp-store sales, which dropped by 7.4%. “Our financial performance in the first quarter was clearly impacted by the weakened consumer environment,” said chairman and ceo Mike Ullman. “Accordingly, inventory will be managed through appropriate pricing actions on existing merchandise and by reducing our future merchandise commitments to better balance our inventory position with expected sales levels.”

One would think that retailers out-discounting each other would result in trading loyalty for a way to stretch their dollars. Yet, most customers still visit retailers where they’ve shopped in the past. In fact, the same customers end up with a better selection of both sizes and colors, improving their satisfaction.

The verdict is still out on back-to-school plans. Both JCPenney and Sears are set to launch exclusive labels (Fabulosity by Kimora Lee Simmons at Penneys and LL Cool J for Sears). “Fashion may play a role when retailers stock up on back-to-school merchandise, but it all comes down to how much money is left in consumers’ wallets,” said Janiak. “What will be even more important is how gas prices evolve over the summer. We don’t even need to see an increase, just a leveling off. If they continue to climb and climb it will bode for a more difficult back-to-school season.”

At the end of the day, discounting is a chain reaction fueled by poor planning, or just plain bad luck.