December 20, 2015

A Nagging Trend

Twenty years ago, Christmas sales happened between mid-October and early-December.

Ten years ago, innovations in shipping and handling allowed customers to receive merchandise right up to within 2-3 days of Christmas. Customers reacted accordingly, delaying purchases. This freaked businesses out, because it created doubt ... as orders shifted later and later, businesses didn't know if they were struggling with a forecasting error or a demand shortfall. As a result, discounts and promotions weren't offered to stimulate demand, but instead, were offered to mitigate inventory positions. It's never good to develop a marketing promotional strategy based on inventory positions.

Today, the customer knows that merchandise featured at 20% off in early November and at 25% off on Thanksgiving and at 30% off on Cyber Monday and at 40% off on December 21 will be 70% off for the two weeks following Christmas. As a result, the customer waits, and for good reason. This trend makes it look like there is an inventory problem, further fueling discounts and promotions and fear. Lots and lots of fear. Worse yet, the customer can give a gift card, allowing the recipient to buy merchandise after Christmas at 70% off. Any business school would tell you that's not a smart way to generate profit.

When viewed over twenty years, we've taken full-price sales from October 20 - November 20, and traded them in for 30% off sales in late November and gift cards in December and 70% off sale periods after Christmas.

We mushed-up the profit and loss statement. By being able to accurately forecast demand (a lost art), we can get out of this profit spiral, this nagging trend. We have the ability to fix this problem. Go fix it!