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'Discounting can be detrimental'

18.02.08 Graeme Neill

The current appetite for discounting in retail could lead to increasing insolvencies, an influential team of industry analysts has claimed. The Retail Think Tank's latest White Paper, which was published today (Monday) warns that "retail in the UK is at a turning point and requires a new set of strategies to survive".

The paper says that the use of sales, promotion and discounting has changed in retail from a "pure clearance role to a range of more tactical and reactive purposes". It warns: "If discounting programmes continue on their present path, the situation runs the risk of becoming untenable for retailers in the longer term."

Discounting can actually change customer behaviour and can be detrimental to a sector, the report claims, by eroding both the brand of the retailer and the shopping experience. The current rates of discounting are also unsustainable in the long term, it says.

The paper was written by a cross industry panel of retail analysts. The Retail Think Tank was formed as a joint venture between accountancy firm KPMG and research group SPSL in 2006.

Sian Davies, from consultancy firm Henley Centre Headlight Vision, said: "Retailers have confused value for money with bargain-hunting, but this has been created by the sector itself. From the consumer's point of view, it is difficult to justify non-discounted prices when they see retailers are seemingly able to drop them by 70% later in the season."

Among the paper's recommendations is that customers will be looking to retailers for inspiration to spend more this year, amid gloomy predictions for high street spending. The RTT called for a "more scientific approach" to pricing, which will optimise demand against price throughout a product's life cycle. "Retailers which focus on their value proposition and use sales and discounts/promotions as a planned, strategic tool are most likely to be more successful," it says. "Retailers should make efforts to add value to drive sales rather than reduce prices."

Retail Graeme Neill The Retail Think Tank

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