Retail analysts ask: at what price sales? Lower profits, buyer skepticism cited as outcome

December 22, 1991|By Michael Dresser

Eileen Erickson is a mother of two, a part-time accountant, a devout Christian and a retailer's nightmare.

Like a leopard in a tree, the 37- year-old Hampstead woman lies in wait, barely moving but keeping her eyes wide open as she surveys the department stores of the Hunt Valley Mall. If a store throws a 20 percent or 30 percent off sale her way, not a muscle twitches. "It doesn't do anything for me," she says. "It's too common."

But then, when the markdowns reach 50 percent or 70 percent, she pounces. "Red dot's my brand," she boasts.

Mrs. Erickson is one of millions of cost-conscious consumers who have learned all too well the lessons retailers themselves have been teaching in recent years. Mrs. Ericksons all over the country are refusing to buy until retailers have cut margins to the bone, making it all but impossible for stores to get off what one expert calls "the price-cutting merry-go-round."

That merry-go-round has been spinning for almost a decade, gaining speed all the time and making both retailers and consumers dizzy. Sale follows sale like cars whizzing along a freeway, and anybody who pays full price ends up feeling like a sap.

"The percentage of merchandise sold at other than listed regular price has risen dramatically in the last 10 years," said Leonard L. Berry, professor of retailing and marketing studies at Texas A&M University's Center for Retailing Studies.

According to the National Retail Federation, 64 percent of all apparel sold at the nation's top 50 department store chains during the first half of 1991 went out the door at less than full price. A decade ago, says Woodward & Lothrop Corp. Vice Chairman Robert J. Mulligan, that figure was about 30 percent.

The trend has accelerated as Christmas gets closer. "I've never seen so much off-price retail advertising in my career as I have this holiday season," said Tony Barbato, the veteran general merchandise manager for the Hamburgers menswear chain in Baltimore.

That sounds like good news for super-shoppers everywhere. In reality, though, many consumers complain of sales saturation. Even Mrs. Erickson, a self-described "aggressive shopper," thinks "there are too many sales."

She complains that her mailbox is inundated with pamphlets from department stores. "It almost irritates me," Mrs. Erickson says. "There's so much verbiage in there, I don't have enough time to assimilate it."

Gwen Ortmeyer, a Harvard University professor, says many consumers feel similar pressure. In an article in the current issue of MIT's Sloan Management Review, she and colleagues John A. Quelch and Walter Salmon write that people in dual-income households are too busy to compare sales prices and "resent having to time their shopping trips to coincide with sales."

Some retail executives claim that consumers are responding to sales as enthusiastically as ever, but Dr. Berry contends that "sales-price clutter" is a ticking time bomb for the merchants themselves. He argues that a marketing approach based on price-chopping eats into sales margins, damages profitability and creates suspicion among customers, who "no longer trust retail prices."

Tricks of the trade

Kathy Oswinko, a legal secretary in Baltimore who said she worked in retailing and "knows the tricks," is one of those suspicious customers. "There's lots of places that mark up just to put things on sale," she says, echoing a complaint voiced by many consumers.

There is no reason to believe that all, or even a majority, of retailers engage in this practice. But those who do poison the well of confidence for more honest retailers.

In Maryland, says Peter Berns, deputy chief of the Consumer Protection Division of the attorney general's office, "this continues to be an area where there are a lot of problems," with complaints involving some of the most highly regarded retailers. He notes that the attorney general won consent decrees against Woodie's in 1987 and Hecht's in 1988 involving mattress sales price claims.

Maryland law requires that a sale has to be "a bona fide offer of savings," Mr. Berns says. If merchants list "original" or "regular" price in their sale ads, he says, "they have to have sold a substantial number of items at that price."

Nevertheless, in the Baltimore-Washington area, many department store sale ads contain language in small print saying the "original" prices used to calculate markdowns are "offering" prices that might not have resulted in sales. According to Mr. Berns, such disclaimers are intended to shield merchants against enforcement action. In the view of the attorney general's office, however, "it does not protect them," Mr. Berns says.

He concedes, however, that questionable markdown claims are commonplace, and some retailers agree.

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