Breakout

Fierce Competition Between Retailers Has Huge Upside for Customers

Jeff Macke
Breakout

If you’re in charge of sales at a major retailer this holiday season, people like SunAmerica’s Heather Hughes are your fondest dream and worst nightmare. On the one hand she’s young, smart and enjoys shopping. On the other hand she’s too savvy to jump at the behest of some marketing campaign. In the attached clip the fashionable millennial says the mid-tier department stores and specialty chains are getting “pummelled” this year and they have only themselves to blame.

Related: Teen Angst: 3 Retailers Locked Out of the Holiday Cool Club

With constant promotions and the ability to do price comparisons over the internet, consumers can sit back and let the stores fight over their business. “You have the stores open on Thanksgiving, you have the stores open late, they’re open until midnight but why rush?” asks Hughes in the attached video. With constant discounts and sales customers “might as well sit back and go shopping in your pajamas at midnight on Amazon (AMZN).”  That’s what Hughes does and it’s hard to argue with her logic.

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Retailers have the same problem whether it’s the Gap (GPS), Abercrombie (ANF), or dozens of others operating below the radar. They all need store traffic and the sales environment is cut-throat. The malls will be ghost towns by the end of the month. With Wall Street already concerned about inventory build-up it’s critical to get product off the shelves before January 1st when things get really desperate.

Related: Ho, Ho Uh-Oh! Can Cyber Monday Save Christmas?


Retailers are facing what economists call a Tragedy of the Commons problem. If every other store in the mall would hold prices steady and collude with one another on promotions then all chains would be able to extract a reasonable, though not excessive level of profits from holiday customers. The problem is the mall isn’t a communist sanctuary. It’s a capitalist fight to the death.  Most of the participants are selling nearly-commodity goods like jeans and tee shirts and fleece of only slightly different quality and print features. It’s a war where all the combatants are armed with little more than price promotions.

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In their fight for your money the retailers have sacrificed their pricing credibility. To Hughes’ point there’s absolutely no reason for shoppers to rush when it comes to taking advantage of a 40% off sale at the Gap just because the company says the sale ends at midnight. On Black Friday the Gap was 50% off and its competitors are half off right now. The Gap will be forced to run deeper discounts before Christmas or watch the limited number of holiday shopping dollars migrate to American Eagle (AEO) or other competitors.

Retailers hoping to see Hughes or her friends come back to the mall anytime soon are going to be disappointed. She knows her sizes and would prefer to not have anyone “eyeballing” her and trying to sell her things she doesn’t need.  

The retailers can’t win the tragedy of the commons at the mall but customers can. Whether you’re picking stocks or stuffing a stocking the choice is simple for price conscious shoppers: put on your pjs, sit back and let the deals come to you in the privacy of your own home.

 

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