Tuesday, May 12, 2009

Major Retailers Cutting Prices to Attract Consumers

Many of the nation's top retailers are cutting prices in order to lure cost conscious consumers back into their stores. But if they haven't slash the salaries of their top executives and raised the wages of their front line employees then their efforts are just window dressing.

As Yian Q Mui reported in his article "Prices Fall to Match A New Frugality" for The Washington Post reports:

"The nation's retailers have begun to embrace the new cost-conscious consumer, developing products they can sell at lower prices without driving themselves out of business in the post-splurge era.

Retailers have absorbed the lessons of a ruinous holiday season. Caught with shelves full of unsold merchandise, they slashed prices to draw in shoppers. But the strategy was unsustainable: It decimated profits and resulted in massive layoffs, killing off a number of chains, including Circuit City. Serving recession-era shoppers, retailers realized, would require a long-term strategy featuring lower prices.

'What we have is retailers reacting to a very low-appetite consumer and a consumer that has been now taught to wait,' said Michael Silverstein, senior partner at Boston Consulting Group"
The article continues:
"Some price reductions have come from stripping out fancy details for which retailers once charged a premium. Production costs have also dropped, allowing sellers to pass on the savings. Retailers are streamlining supply chains and creating new merchandise with cheaper components and lower prices. In some cases, they are sacrificing profits and hoping to make up the difference in volume"
So much of this "price cutting" comes from reduced craftmanship, minimizing production costs (i.e, keeping wages & benefits low, outsourcing to foreign labor, etc) and "creating new merchandise with cheaper components". It seems that "sacrificing profits" is a last resort measure.

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