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Current wall street Journal Opinion Article - Essay Example

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26 November 2013 The Contrived Discount Illusion: How Have You Been Deceived Yet? As holiday starts to creep in, retail stores are pulling out their top of the line products and rally them with enticing numbers: remarkable markdowns on the prices of brands one would think require an extra effort of saving before you could ever buy them…
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Current wall street Journal Opinion Article

Download file to see previous pages... In fact, you have been fooled after all. Well, I would not be surprised if you have dropped your jaw that wide, but it is absolutely true: the discounts that you got from retailers are not really discounts; they are just the moving elements of the discount game. The most ordinary of assumptions that we have is that discounted products are actually stock up goods that were not sold; so the retailers are lowering down their price by offering discounts just to avoid heavy inventory at the end of the day. This is your first pitfall. The truth is that retailers are working rearwards with their suppliers in order to come up with prices that protect their gross margins: the difference between the cost of the product and the starting price. For instance, consider a Lee pants that is on sale for say 45% off its “supposed” starting price of $200 so that you can take it home at $110 does not actually offer you discount at all: the pants is actually worth less than $200; the starting price was actually calculated with the discount included. They take the products from their suppliers at a very low price but they put a flat margin on top of the additional amount intended to take on the discount. The problem is that buyers are not so mindful about how much they have spent and if what they have spent really commensurate to the quality of the product that they bought. This should have not been a pitfall in the first place because many of the products these days that were sold at full price but were put on sale for a 40% to 50% discount have illegitimate prices. Think about a pair of shoes that costs $200 – it would not appear like a legitimate price especially if the brand is not known and if it has been stocked up in the store for a long period of time. Now here is the most amazing truth about this discount illusion: in an article written by Suzanne Kapner (2013) for the Wall Street Journal, she found that from 2009 to 2012, the deals offered by “31 major department stores and apparel retailers increased 63%. That includes an average discount of 36% from what the previous 25%. But what is more astonishing is that the gross margins were flat at 27.9%. This means that notwithstanding the whopping discount offers retailers have for their customers, their gross margins are not affected at all. This is because the margins are set at a flat rate of about 28%; the discount is only then added to the price once the margin is established. In other words, the discounts are computed based on the original starting price. And just try to think about it this way: if retailers are selling products like they are almost giving them, why have not they got into closure yet? They should have long gone bankrupted if this is the case. But majority of the discounts are actually rated into the product. Knowing all about this discount game may appall many buyers, but in fact, the stupidity of this entire thing is that the original price from which the discounts are being determined if, most of time, erroneous or false considering that original prices normally does not aim for salability: no one would ever attempt to buy an ordinary shirt for $50; but starting prices are rooted from the excessive markups of the products. Hence, if you got a shirt for 40% off the starting price of $50, and got it at $30, retailers ...Download file to see next pagesRead More
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