Member Exclusive   //   April 9, 2020

How retailers are figuring out their discount strategy

For retailers, running heavy promotions during store shutdowns is proving to be tricky.

Due to the coronavirus outbreak, large retailers like Macy’s and Nordstrom, along with chains like the Gap, are aggressively pushing seasonal sales to make room for spring merchandise. 

With virtually all brick and mortar sales down, anywhere from up to 80% to 100% of expected revenue effectively disappearing for large brands, offering discounts is one of the most effective ways to stay afloat right now, said senior retail analyst at Fit Small Business Meaghan Brophy.

“March typically being a great month for retailers, many are having to offer discounts to clear out inventory,” explained Brophy, whose latest report focuses on ways the coronavirus quarantines will affect future shopping experiences, including the increase of e-commerce deals. 

The roll out of promotional campaigns helps reach those at-home shoppers while they’re still spending. This poses a problem for smaller companies that don’t usually offer them. However, some brands are finding unique ways to go about promotional campaigns in order to sell the overflow of products.

Decide whether discounts are right for you
Unlike corporate retailers, small businesses and startups are likely in need of cash, so steep discounts can be detrimental for the brand’s perceived value in the long run. “It’s a slippery slope for them,” said Brophy, who explained that “once you start doing it, it’s hard to come back from those price points.” 

In the startup space, community referrals and subscription savings are typically the closest to “sales” a brand gets. Rarely do consumer brands venture into “clearance” territory beyond seasonal promotions, making the leap more difficult during a crisis. 

Depending on the brand’s perceived necessity, dropping prices may be a last resort to salvage margins.

Due to shoppers currently being more hesitant, especially when it comes to non-essential purchases like beauty and apparel, even retailers that don’t normally offer discounts beyond the occasional promo code are turning to it. One example is swimwear brand Summersault, which just launched its first ever sale. Others, like pet care brand Wild One, are extending savings on subscription items to customers currently spending time at home with their pets.

Figuring out how much to discount
The fear of slipping down a pricing hole is real. However, the perception that DTC brands are above discounting could be coming to a close now that they’re forced to make sales during store shutdowns.

Finding a discounting balance isn’t easy said Justin Kerzner, president of Naked Retail, which launched bundled product sets since closing its shops last month. “How do you increase conversion without looking cheap or desperate? It’s scary,” he said.

Wholesale focused-brands like Plant People, which specializes in wellness and CBD products, have been “very careful in how to launch our sale,” said co-founder Gabe Kennedy. 

He said that adding free shipping and discounted product packs wasn’t an easy decision. But with a large part of the business shuttered overnight, the team had to quickly navigate how to sell products without the independent brick and mortar shops they typically rely on. 

As there is less opportunity for people to have an in-store experience right now, Plant People wanted to give out a generous discount without sacrificing the products’ value. However, they were also sure to keep discounts small enough to not drive all sales away from many of the brand’s partners, whose brick and mortar shops are currently closed. 

Creative promotional tactics
To “make the most out of the current situation” with the resources on hand, Naked Retail decided to bundle wellness and grooming kits for customers, which range from $75 to $305. Kerzner explained that after laying off store employees due to closures, the idea came about as a solution to focus on the company’s own branding and a chance at some exposure. 

Offering these care packages is meant to boost online sales, but it’s also a way to help sell partner brands’ inventory, which include Hims, Hers and Harry’s. 

“It’s a quick Band-Aid fix, but it gives us a chance to get feedback on what’s working,” Kerzner said. And while sales haven’t been substantial since last week’s care package launch, many brands have reached out to partner with Naked Retail on the packages.

Being resourceful with products is something to consider even after customers venture outside, said Kerzner, who expects “efficiency” buying to become a key retail component going forward. “As a digitally native brand, we’re having to figure out if going omnichannel in recent years helped create this issue across the industry,” he explained.

Moving forward, DTC sales will require finding ways to deliver the same experiential service with as little touch as possible.

“This includes community or additional add-ons like newsletters,” said Kerzner, adding that potential future ideas could be customer referrals to other brands and in-store collaborations to minimize trip length.

Managing the tone of promotions can be tricky
There’s always a concern that pushing discounts is seen as an exploitative measure. However, Plant People’s Kennedy said that offering accessible prices to the community during this time of stress isn’t just a way to give back, but also necessary to stay afloat.

In offering temporary price drops on high end wellness items, like the $148-valued sets being sold for $104, the company wanted to directly explain the decision to customers. This included posting a video on social platforms, which described the transparent reasons for the rare promotion and the need for customer support during this growth slowdown.

“The goal isn’t to come out of this with millions of dollars in profits, but to hopefully get to the end and survive this crisis,” he said.