American retail needs to kick its discounting habit

In a black and white world, solving fashion retail’s over-discounting problem would take fifteen minutes.

It would go something like this: retailers would build a line and set prices in line with their margins, price expectation and competitors and that’d be it. You’d get some discounting around holidays and promotional periods but over all, the first price would be the price. Or as this dream world would have it, “first price, right price.”

But back in the real world, where we’ve seen the halcyon days of “good, better, best” retail have spin off into the era of “cheap, cheaper, cheapest”, and things aren’t so simple.

In this world, where fingers are constantly pointed at ecommerce, fly-by-night trends or consumers chronically hooked on deals, discounts are a year-round fact of life. And there’s no flipping a switch and changing that in fifteen minutes. If JCPenney taught us one thing in 2013 it was that. Going cold turkey on discounts is like owning a waffle iron, a great idea in theory and a messy one in practice.

So how do we proactively reverse the tide of systemic discounting without triggering a spending drought?

First, let’s define the contours of America’s discounting problem.

Right now, more than a third of all apparel products in the US market are currently discounted. What’s maybe even more alarming is that the average discount is almost 40%. Forty-seven percent of all those discounts is 50% or more. Products introduced since the beginning year aren’t showing signs of improvement. Forty-five percent of them are already discounted.

If alarm bells aren’t ringing, you may want to check the batteries aren’t dead.

Discounting has become institutionalized. Where it was once a strategic and trusted spend-incentivizer, it’s now been assigned into the uncomfortable role of acting like a full-fledged trading strategy in its own right. And it’s happened to the satisfaction of no one in particular.

Retailers don’t spend their lives creating, sourcing, manufacturing, pricing and shipping collections just to watch them get walked down in full view of their peers and their core customers, for whom each new markdown chips away at the brand’s identity. And they certainly don’t take much satisfaction in product engineering – reducing the quality of products at manufacture to facilitate the discount.

The utopian dream of fashion retail is giving customers something they love, at a price that keeps the ecosystem vibrant, creative and alive. But with customers trained to expect wave after wave of discounts on a never-ending promotional cycle, this is the asymmetry in which some retailers find themselves.

So if consumers have grown accustomed to regarding first price as something that will come down before long, how does retail win back their trust? And, to make things even more complicated, how does it do that in a post-truth, alternative-fact world where trust can feel naive and skepticism is the norm? One word: transparency. Or at least, partial transparency.

Just like large industries have had to fashion needs to make an investment in bringing its mission statement to the consumer. Organic tomatoes and hybrid cars have shown that when people understand why things cost the way they do they’re far less reticent to pay full price for them. Glenn Beck seems to have given his career a second chapter as a retailer doing just that. People like the satisfaction of spending money in the name of a good cause like fair wages, the local economy or the environment.

Fashion retail, has always been a great storytelling machine.

Good content can inspire us, shape how we define ourselves and create a shared sense of values with a new community. A handful of upstarts are already taking advantage of that machine and seeing impressive growth, fueled by full-priced sales and great positioning because of it. These brands are building fiercely loyal customer bases by aligning with them, instead of discounting to them.

That’s a powerful idea, one that resonates deeply with a post-recession consumer looking for signs of prosperity after so many years of closures, layoffs and Everything Must Go. One immediate way to retail to that sense of prosperity isn’t deeper and deeper discounts, it’s creating products that connect with consumers at prices they understand and can afford. Of course that’s easier said than done, but as retailers are now able to access huge amounts of data that give them previously obscured insights into their consumers, markets and competition, it’s more possible than ever.

It’s worth pointing out here, at risk of stating the obvious, that we, as consumers, have more data at our disposal as well.

The pricing margin of error is tighter than ever.

If retailers can’t see where their competitors are pricing similar items, make no doubt their customers will. If they’re not monitoring the ever-shifting market constantly, they risk putting themselves into a situation where they can’t help but fall back on discounts.

Today’s discounting battles will likely take the shape of speed, trend and story in the future. But the first step lies in re-establishing the legitimacy of first price.

Is this going to solve anything overnight? No; it took us a long time to get here and it will take time to work ourselves out of it.

Is it impossible? Anything but.