Do retail discounts work?

By: Leonie Barrie - 4 December 2008 18:28

As more and more UK retailers are turning to discounts and special promotional events to try to persuade Christmas shoppers to part with their cash (Marks & Spencer is holding its second 'One Day Christmas Spectacular' today) some industry observers are beginning to fear they might be doing serious damage to their businesses.

Like M&S, which is offering 20% of all its clothing, the UK’s second-biggest department store chain Debenhams is also slashing 20% off items over the next three days. And that’s just the tip of the iceberg, since most high street retailers fear this festive season could be the worst in recent memory. Some stores in London have even started opening at 7am to catch shoppers on their way to work, tempting them into their shops with champagne and croissants.

Are early discounts like this really such a bad idea? In the US of course they’re commonplace, recession or not, and Black Friday’s pre-dawn openings and steep discounts are as much a part of the Thanksgiving ritual as the turkey feast.

But in the UK it’s a new phenomenon – on this scale at least – at what is traditionally the retailers’ most lucrative time of the year. The fear is that consumers will hold off buying in the belief that prices might fall even further, profit margins will be squeezed, and it perhaps sets a precedent for seasons to come.

Of course a lot of retailers need to clear their stock too, and many will argue that it’s better to sell at a 20% discount now than be forced to take even more off in the January sales. And desperate times call for desperate measures – so whatever the risks of early discounting, perhaps the danger of doing nothing at all could be even worse.