Target Sales Demonstrate Consumer Demand for Discounts

Target sales for December constitute more evidence that consumers are making discounts a higher priority when they’re shopping.

Target said its comparable-store sales for the five weeks ended Jan. 3  declined 4.1 percent, but Gregg Steinhafel, its president and ceo, noted that the decline moderated in the last two weeks of the month as the company reduced prices. While he said Target was after market share, customers were clearly after bargains, and they were willing to risk that preferred products might sell out to wait for a better deal.

The Target results aren’t the only evidence for the phenomenon. Wal-Mart reported that soft December sales results at Sam’s Club improved in the discount driven weeks of and after Christmas. SpendingPulse survey results from MasterCard Advisors indicated that many consumer product categories did better at December’s end, including footwear and men’s apparel. And data collected by the International Council of Shopping Centers and Goldman Sachs for their sales index demonstrated that, among the retailers studied, same-store sales got a 1.4 percent lift for the week ended Jan. 3 versus the week earlier.

The idea that consumers may become addicted to deep discounts sends shutters through retailers to their suppliers and the investors who back both. Retailers look to big brand-name suppliers like Procter & Gamble,  Newell Rubbermaid and Levis Strauss for innovative products and marketing support, including money to fund discounts. However, suppliers have been hard pressed in recent years by retail consolidation, as fewer stores mean more exacting owners, and by consumers who have been demanding lower prices at the same time they’ve been insisting on better quality. In the meantime, to deliver lower prices and get credit for it, retailers have been turning more to private labels, actually taking sales away from their own name-brand suppliers. In its retail predictions for 2009, Citigroup put it bluntly, saying vendors have their backs to the wall and many may face their own money troubles.

The situation doesn’t bode well for a recovery at retail. Consumers are on to retailer discount strategies and pressure on suppliers may mean fewer interesting products hitting the market. The situation could favor international retailers, including Wal-Mart and Costco, who can shift successful innovations from one country to another, and it certainly suggests more retail consolidation. Yet it also hints that consumers will be even more creative in conserving cash than retailers are at coaxing them to spend it.