Retail Rant: Death To Discounts

Salty Peaks Owner Dennis Nazari on location at Tailgate Alaska

By Dennis Nazari, Owner, Salty Peaks, Salt Lake City, Utah

Since the dawn of retail, there have been discounts. These are spawned for many different reasons: from moving slow sellers or overstock situations, to taking care of team riders and employees they are all discounts non the less.

While discounts are a necessary part of doing business, problems arise when they undermine MSRP on a consistent basis for whatever reason. Constant discounting causes industry health to deteriorate,  and without diagnosing the problem and taking appropriate care to rectify the problem, the industry starts to die.

The snow and skate industry have seen fluctuations in their popularity and financial stability over the years, but one way or another they always seem to rebound sooner or later, but never before has the end consumer been so exposed to the real cost and value of gear made overseas. This has led to an erosion in price expectations from wholesale to retail, and the end consumer is being trained to not pay retail prices.

This might be a viable business model for commodity-based retailers like Costco or Walmart, but in the snow and skate industry things are vastly different--or at least they should be to maintain differentiation and keep the sports “cool.”

The industry is seeing a huge problem in product and category devaluation-- training the end consumer to expect super deep discounts  of over 50%. Entire categories like goggles, sunglasses, gloves, and shoes are being commoditized and devalued--not only at the brand level, but at the category level as well

For example, many (if not most) companies have been finding themselves overstocked and needing to sell a lot of excess gear quickly to keep  cash flow strong, keep reorders for the next season high, get the best prices from their manufacturers, and keep their place in the factory production schedule.

This is nothing new in itself. Back in the day, manufacturers would sell off-price closeouts to big box stores or bigger core shops that would resell at the start of next season as “Labor Day Deals,” or sell it in season at a reasonable discount of 20, 30, or even 40% off.

What’s happening now is many manufacturers have been going to big box online discounters like Whiskey Militia, who are known for deep discounts, and have ever-growing followings on their sites. I have the desk top pop up that alerts me when the next new deal pops up (Wow, Hurley board shorts--72% off!). These sites have built a customer base that numbers between 500 and 3,500 people at any given time, a fact which is great for business but the reason so many people are monitoring it is because you can always find gear at 50 to 89% off .

The problem for the industry arises when more and more manufacturers are going there to dump goods because these discounters have room to store it , cash to pay quickly, and can sell the gear they pick up super cheap and super fast.

Dropping in at Salt Lake's Salty Peaks.

But every time another 200 goggles shows up at 70% off and sells out in 15 minutes, that’s 200 end consumers that won’t be into Salty Peaks or any other retail location to buy goggles, thus taking those end consumers out of the retail category and selling direct to them at distributor pricing or better .

This not only hurts ALL brick and mortar businesses, but also trains end consumers to expect those kinds of discounts.

This is the same mistake that got the industry into the mayhem that we just started to pull out of 24 months ago. Remember the collapse and consolidation of 1997?

Over supply and a bad snow year always spells disaster, but what makes it worse is desperate distribution decisions that have an adverse affect on the industry’s health.

I recently had to explain to one of our suppliers that many of their goggles in our inventory came from us purchasing them from Whiskey Militia at a lower price than we could buy them from the manufacturer, which has its own obvious implications.

I had one sales manager say that if they sold us closeouts it would hurt our inline business with them. Obviously,  the massive discounts from competitors is hurting the inline business anyway because sales are down and there is less open to buy because so many customers quit shopping at core shops and are buying online at 50% off or more, often with free shipping.

With the bad snow year, it’s easy to blame sales declines on the snow, but I think there is a much bigger and uglier problem that no one else sees, or at least they are not talking about.

Past TransWorld Business stories have tallied the losses of core shops  and how a small percentage of those who went out of business were replaced by multi-door chains or mall store openings. However, the overall reduction in the number of storefronts selling gear should be a huge red flag to the industry. Yet we keep making the same mistakes.

It’s always better to be creating demand with scarcity and selling through at full pop than to be overstocked and discounting. The latter always has the same dampening effect on the industry as a whole.

Those creating the problems, whether unknowingly or as a part of a competitive strategy to eliminate competition, simply need to keep inventory levels in check and know when to say no to questionable distribution choices for the health of the brand or the category.

We want to hear what you think. Weigh in in the comments section below…