How the EOFY sales amplified retail’s ongoing discount trap

Brands have long offered discounts during the End of Financial Year (EOFY) sales period to clear out-of-season stock.

Yet this year, the retail industry witnessed eye-watering top-line discounts ranging anywhere from 30 to 80 per cent off – with in-season stock up for sale, too.

The over-reliance on discounting has given some industry experts pause as it becomes apparent that marketing calendars have become dominated by a growing number of sales, including not only EOFY, Black Friday, Cyber Monday and Boxing Day, but also Click Frenzy, Afterpay Day, Amazon Prime Day and more.

“Retailers have become addicted to discounting. They really have focused on those kinds of small key pillars of the sales year,” Rob Godwin, CEO of the National Retail Association, told Inside Retail.

“​​We’ve become hooked on the discounting drug. So unfortunately, what we are doing is generating revenue, but not necessarily profit,” he added.

Race to the bottom

It’s no secret that retail’s cost of business has increased with inflation to what has now been coined the cost-of-trading crisis.

The EOFY sales presented brands with a prime moment to clear overstock and create cash flow but this year saw a lot of brands also offering discounts on in-season stock.

“Unfortunately, to continue to chase the dollars rather than profit, people go out of business,” stated Godwin.

“We’ve seen some massive brands recently go into administration simply because of just not making the profitability to reinvest back into the business.”

The macro-environmental factors at play have pushed both retailers and consumers into a perpetual cycle of discount selling and shopping.

“Compile on top of low consumer confidence and business confidence at the moment is cost of living and cost of businesses,” said Godwin.

“This is really like a vicious circle of chasing the dollar, having increased costs and low consumer sentiment all at the same time – so these headwinds are quite compounding.”

Retailers are not completely helpless if they can find the discipline to refuse the discount trap. But it’s easier said than done.

Providing new value 

Retailers have the option to remove themselves from the discount trap if they invest in alternative marketing strategies. 

“I think you’ll see the brands that are actually still making their profits and still doing well, are those who are controlling their communication and their marketing to their consumers,” stated Godwin. 

Godwin encourages brands to bet on their brands and find new and creative ways to market products that don’t solely rely on price stimulation.

“To stop the race to the bottom, you have just got to add value back into your brand,” said Godwin.

“They need to understand their consumer, their cohort, who they’re selling to, and what’s going to trigger them outside of discounting,” he added.

Offers like free shipping, curated shopping experiences, gifts with purchase and early access to drops are value-adds that retailers can offer consumers while simultaneously building brand loyalty, without hurting the business’s bottom line.

“It’s easy to say that in good times, it takes real discipline in the tougher times, like what we are experiencing now, to really own their consumer base,” shared Godwin. 

“I think the final thing really for retailers to do is really focusing on selling their story,” he concluded.

The post How the EOFY sales amplified retail’s ongoing discount trap appeared first on Inside Retail Australia.