The point of sale
Christmas came early this year, with some retailers starting sales as early as September. For many, the Christmas sales period will stretch for several weeks or even a full quarter, including Black Friday, pre-Christmas and New Year sales.
The temptation to join the race to the bottom is difficult to resist, but the drawn-out escalation of promotions presents operational challenges that can be harmful, especially for smaller retailers with lean operations.
This is due to the pressure of maintaining low margins while managing a range of complex (and costly) operational issues over a longer period, for example:
- Demand planning becomes more difficult, as retailers balance the opportunity cost of lost sales against achieving optimal net margins. Accuracy increasingly depends on the strength of a retailer’s data analytics capability
- Delivering large volumes of stock requires building capacity into supply chains and distribution networks, and the fulfilment of online orders can make for a real headache
- Store costs often rise, as more staff are needed to manage stock and run sales events, and maintaining service standards over a lengthy period is an added challenge
Retailers who can more easily afford to join the race are those with excess capacity in their operations, or those who can afford to invest in infrastructure on a seasonal basis.
But we believe lean operators should question the point of adding strain and putting cost into their business in return for lower margins.
We have already seen several retailers come to this conclusion. While some are using pre-Christmas sales in a more targeted way, for example to clear weak product lines, others are refusing to join in at all.
Fat Face has not put on pre-Christmas sales for the last four years, and has used its Festive Price Promise to maintain price integrity and reassure customers that they are getting true value for money when they do discount from Boxing Day. Last year this helped Fat Face to bring forward consumer spend, supported a sales rise of 5% over the Christmas period and enabled them to go into the post-Christmas period with 22% less inventory.
Similarly, Jigsaw saw a 10% rise in turnover over the Christmas period in 2016 after maintaining its full price offer and marketing itself as a brand that offers differentiated, quality products that are a true Christmas gift.