In the early days of modern retail, price-tags were non-existent, and haggling was the name of the game. As retailers increasingly make — and consumers buy — more and more goods, the cost of items is once again becoming ephemeral. In the book, Bargain Fever: How to Shop in a Discounted World, author Mark Ellwood charts the history of this trend and describes some of the different ways that retailers at all ends of the spectrum are luring customers with different types of discounts.
An edited transcript of the conversation appears below.
Knowledge@Wharton: We are here today with Mark Ellwood, author of Bargain Fever: How to Shop in a Discounted World. Mark, thanks for being here.
Mark Ellwood: Thank you so much. I love talking about this.
Knowledge@Wharton: In the book, you write that the percentage of inventory that retailers sell at some kind of discount has just about doubled in a decade and that the percentage is actually still going up. How did this change so fast?
Ellwood: It is fascinating. Essentially sales of [items on sale] are double what they were just a decade ago — and they are still climbing. We are heading to a time when a sale is going to be more normal than full price, which is kind of crazy and insane. What happened was that an awful lot of factors came together to create the perfect discount storm.
We have the Internet x-raying prices and torpedoing prices so you could check them and verify them and change them around. But, at the same time, we also have too much stuff. Remember, this is the decade of TV shows like Hoarders, Storage Wars and Extreme Couponing. Those are the shows about products — about things — and that is because we are buying too many things. When there is too much stuff and not enough people to buy it, that changes the prices — it reduces them, in other words. And that’s what has all come together.
Knowledge@Wharton: How has this new selling mindset by stores impacted the way consumers approach a purchase?
Ellwood: I think it has reminded consumers that essentially, for the first time in history, they are in pole position. We have a mindset where essentially every consumer is the bachelorette, and all of the stores are the suitors. They are the contestants. There are too many stores and not enough shoppers. So it has made shoppers realize that, hey, I hold all the cards. What am I going to do now in that pole position? I am going to say, “Hey, that is too expensive. Make me an offer.”
“We are heading to a time when a sale is going to be more normal than full price….”
Knowledge@Wharton: You note in the book that, in today’s retail landscape, two shoppers could go into a particular store on the same day and buy the same thing, but pay wildly different prices.
Ellwood: Absolutely. I have done it over and over again. I have tested this theory again and again. I was just filming a segment for ABC with Juju Chang, and she walked into Banana Republic and bought a beautiful sweater and a lovely blazer — the perfect gift for her husband.
Then I walked in 10 minutes later and, with the same sales assistant, I paid 25% less simply because I signed up for a newsletter from Banana Republic online and then spent a 25% voucher for online shopping. I pulled them out and I said, ‘Hey, I would love to spend this voucher with you if you let me use it now….’
Knowledge@Wharton: What does this say about the way that stores are thinking about their different segments of customers these days? It seems like they are really trying to target certain people and maybe are not concentrating as much on others.
Ellwood: I think what we are learning is the power of presale. There is this whole new trend of the secret VIP sale that has emerged, where essentially by the time the sale signs go up, in a department store for example, anything good is gone. Because the week before that sale, regulars — and that is everyday VIPs; they don’t have to be super celebrities or black card holders, just a regular of the store — will have been invited to a secret sale — the presale — where they will be shopping at 40% off before anyone else knows the sales have started.
In other words, when there are too many shops and not enough shoppers, it pays you to really look after your regulars. It is like a velvet rope. Suddenly, there is a VIP room at the mall, and if you shop loyally enough, you get invited.
Knowledge@Wharton: If I am a typical shopper, what should I be doing these days to get those kinds of deals?
Ellwood: It is a great lesson that a smile costs nothing. Part of the new retail paradigm is if you go into a store and you are on your phone and you can’t be bothered to pay attention to the sales assistant and you are a little churlish and you are in a rush, you are going to pay more.
You [should] walk in and say, ‘Hey, lovely to meet you, I wonder, can you help me out here? I love these shoes. They are beautiful. I want to buy them right now but they are a little expensive. Are there any promotions available? Can I sign up for e-mail [from the store]? Can I give you my e-mail so that you can let me know when they go on sale?” A little bit of politeness and a smile, and you are suddenly going to see those 20% reductions. It is really that simple. It’s just about being more civil and smiling a bit.
Knowledge@Wharton: It is fascinating that you say this because we hear a lot about how the consumer landscape has changed due to technology and the rise of e-commerce. But it sounds like what you are saying is that it really — just like it traditionally has — comes down to that human touch.
Ellwood: This is a wonderful thing that people overlook. Show-rooming means having a smartphone in the palm of your hand allowing you to check prices and compare prices. If it is cheaper online, that’s that. But if you’re not very high-tech, do you know what the biggest power is? The sales assistant. If you are nice to them, there are magic things that they can type into their register.
“… If you go into a store and you are on your phone and you can’t be bothered to pay attention to the sales assistant and you are a little churlish and you are in a rush, you are going to pay more.”
It is a great reminder that retail is really going back to its roots. Remember until the 1840s, there was no price tag. The price tag was invented in the 1840s. And I think we really are in the final days of the price tag. In 50 years, a price tag will be a retail [eyesore]. It will operate in very different ways. Everything will be fluid.
Knowledge@Wharton: Is this really a sustainable equation for retailers? Is there a way to have all these sales, to sell so much of what they are selling at a bargain, in a way that is actually lucrative for the brand and that is actually going to help the brand as opposed to putting it out of business? Because it sounds like it could be the latter to me.
Ellwood: They are learning fast. You can’t constantly discount because it is a race to the box office. In a price war, there are casualties. But I think it is about rewarding loyal customers. In Bargain Fever, I talk about [luxury shoe brand] Roger Vivier for example. Roger Vivier has a very clever sale where it puts red and yellow dots on the bottom of the shoes and then it sends engraved invitations to regulars saying, “Hey, come shop — 30% off or 40% off, according to the [color of the] dot.”
There is a little sign in the window that says sale for legal reasons, but it is tiny. And if you walk in off the street and you say, ‘What do these dots mean?” they will tell you that they are for stock taking. Of course, that is true, but it is not really the point. I think it is sustainable for retailers to offer sales if they target them and [the stores] realize that [they] are more rewarding someone for [shopping there.]
The other question, of course, is there is a tiny number of companies — you can hold them in the palm of one hand — that are completely discount-phobic. They are able to be discount-phobic because they are much less profitable with what they make. It is very restrained….
Knowledge@Wharton: I have definitely been conditioned as a consumer that I am not going to pay full price at certain retailers because I know that if there is not a 40% coupon today, there will be one next week. But then on the other hand, that there are certain retailers that I am thinking of that have maybe two or three big semi-annual sales a year, so you know to go and shop then. How do retailers find the best strategy for themselves? Does it depend a lot on what segment they are in? Because the one you mentioned — Roger Vivier — is a very high-end luxury store.
Ellwood: I could only find four companies worldwide that are sales phobic, and they are Apple, Louis Vuitton, American Girl dolls, and Nespresso coffee — the [coffee capsules], not the [coffee] machines…. All of them are premium products. They are all Veblen goods, [which] is something that means more to you the more you pay….
“Never pay full price for anything. Ever.”
You can’t be sale phobic if you are a mass merchant. J.C. Penney committed retail [suicide] by getting out of sales. It lost almost $1 billion in less than a year because it was a mass-market retailer. But if you are producing elite, limited-edition amounts of things — something really prestigious — you can migrate away from constant sales to just the occasional, “Thank you very much, we love you” sale.
Knowledge@Wharton: Is there a way for a mass retailer like J.C. Penney to do its own spin on the dot strategy from Roger Vivier that you just mentioned?
Ellwood: The issue here is that what J.C. Penney did right was overlooked. One of the few moments of brilliance from J.C. Penney’s [now former] CEO was to realize that the way to stymie … sales latitude is to [carry goods] that no one else has.
It’s really the retail strategy that a very simple department store in the U.K. called John Lewis adopted. John Lewis is middle-class England’s favorite department store, and it has thrived throughout the recession. One of the big reasons it thrived is because most of the stuff it sells is only available at John Lewis…. If you have unique products, only you are deciding how much it costs. You have a lot more control. And if you are in the mass sector, that is what works…. But no one in a mass market retailer should abolish sales. It is counter intuitive….
Knowledge@Wharton: Another thing that you talk about in the book is that both luxury stores and more well-off consumers are getting in on the bargain trend — it is not just consumers at the lower end of the economic ladder. What are luxury retailers and consumers doing, and how are they making this fit into their lifestyle and into their brands?
Ellwood: What I talk about in Bargain Fever is that there has been a shift not just in the economic set-up in the world but in the mindset. And the point now is that getting a deal does not make you indigent. It makes you intelligent…. You show off about getting that deal. And the biggest up-tick in deal taking has been among the elite. It has been among the 1% because no one feels comparatively cooler….
Essentially, getting wealthy today is not because you own a lumber mill; it is because you speculate well on the stock market, and money makes money. But money making money can vanish tomorrow. A lumber mill is very hard to go out of business overnight. Once your money is fragile, deep down you feel less rich. And if deep down you feel less rich, you are going to migrate to a little bit more penny pinching….
Knowledge@Wharton: You mentioned that there are four brands that do not subscribe to the sale mindset. Do you think they can hold out?
Ellwood: Those four stores are facing very different challenges. Nespresso lost a lot of its copyrights and patents in 2012. So it is having to reassess its business. I wonder what it will do. American Girl is sitting pretty because its prices have risen exponentially in the last 10 years — $105 for a piece of plastic. It is a brilliant business model. Apple is becoming a lot more promotional because Steve Jobs is no longer around to prevent it from becoming promotional…. Louis Vuitton destroys what it does not sell at a very elite sample sale. It is just going to stick to that strategy. It suffers, of course, because it helps the rise in fakes. Louis Vuitton could be a booming industry.
I suspect there is one other brand that is dipping its toe in the discount phobic waters and that is Chanel. Chanel is very interesting because, unlike almost every major fashion brand in the world these days, Chanel does not answer to Wall Street or investors. Chanel answers to [owners] the Wertheimer family. And once something is private, you can manage it however the hell you want. You can plan ahead. You can say we will take a loss this year,, and it causes you no problem.
Chanel has hiked its prices in a way that even American Girl would envy over the last 10 years. And it has also shuttered its outlet at Woodbury Commons [outlet mall] just outside Manhattan. So I think we are going to see someone joining the discount-phobic ranks if one of those [four] steps out. I don’t think many other people are able to join the discount-phobic ranks. It is a really elite club. I hope that not too many people do join that club because, these days, not having a sale is a little illogical….
Knowledge@Wharton: You were saying previously that you envision a world where we will revert back to that age where there are no price tags. How would that work? How would that work for retailers or consumers?
Ellwood: Ninety-two percent of seats on any flight are sold at some form of discount. We all travel fully aware that as we check in at a hotel, the price we paid for a room is almost guaranteed to be different from the man standing behind us in line. We are very used to that. There is no such thing as a rate for a room any more. There is just a ballpark figure…. That kind of retail [mindset] is going to spread everywhere.
You have to look at French hypermarkets for this. The French, for lots of reasons, have pioneered electronic shelf labeling in their giant stores. Those are the little digital shelf labelers. So your boxes of cereal do not have a price tag on them. They have a little screen in front of them that says €3 euros. That price can be changed every 15 seconds if need be — or even quicker. It is changed instantly.
It can also be changed if you check in with your phone. There is new technology where there will be social pricing. So if you and your friends create your own Groupon and all 10 of you check in on those cereal boxes in the same store, you will get your own group discount. All of that technology exists right now and it is spreading. I guarantee that in 10 years, we will see it in all sorts of strange places. It is too seductive for a retailer to resist — way too seductive.
Knowledge@Wharton: Mark, thank you so much for talking with us today.
Ellwood: Happy to. One last piece of advice: Never pay full price for anything. Ever.