Is Discounting Usage Intensifying in eCommerce?
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If you are a regular reader of this column, you’ll know that 2024 has been a bit of a shocker in terms of revenue growth thus far. Particularly weak performances across January and April have conspired to leave the year-to-date growth figure, with five months of data in, running at -4.3%. This is against a forecast of 0%, so you can see just how far behind those months have dragged us. There are numerous possible reasons behind this sluggish performance – the failure of summer to get started, economic malaise etc – though it is worth saying that the growth trajectory is pointing in the right direction, it’s just very slow pedalling (uphill) to arrive at that destination.
The Role of Discounting in Retail
If trading conditions are proving tough though, are we seeing retailers reach for certain levers that you might expect to help stimulate some demand – chief among which would be discounting?
The answer is yes, but it’s a complicated yes. To be clear, there is nothing uncommon or necessarily wrong with discounting, and there are many different ways in which it can be deployed. The retail calendar organically lends itself to having periods of clearance as seasons change – any stock that has not sold needs to be run through to make space in the warehouse for the new products. Retailers also run flash sales, which might be an attempt to build a bit of demand and catch up on revenue targets if things have proven slower than they had anticipated (or, indeed, to steal a march on the competition).
Challenges of Entrenched Discounting
The slightly more problematic occurrence of discounting is where it isn’t being used for cyclical clearance purposes, but is instead a switch that is pressed to stimulate demand – not in the way a flash sale operates, which might only last for 24 hours; it is switched on intended to just last for a short timeframe, but actually it can become far longer.
The pattern has been pretty clear historically – when times are hard and customer propensity to buy under pressure, retailers start to fall into the trap of a form of discounting that gets entrenched. The ones that are struggling push it the hardest, their competitors get drawn into it, and before you know it a widespread trend is established that many find it hard to stay out of.
That does appear to be where we are now. When compared to previous periods, the intensity of it is not significantly higher at the moment, but there is a difference worth noting. The below chart shows the percentage of all items sold that had a discount applied against them. The percentage hovers around the 50% mark for most of the two-year period covered by the chart, but the last four months have seen it stay above that point – the first time it has done so consecutively.
While it is quantifiably the case that it’s the first time that has happened, it has almost been the case several times over the past two years anyway.
So discounted products make up a major element of the overall sales mix and have been over the whole cost-of-living era. Is it getting more intense? Arguably, but only marginally so. Retailers would love to see an improvement in shopper confidence that will enable them to just shave a few percentage points off that chart…
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