US retailers favour targeted promotions

07 July 2009

NEW YORK: Major US retailers such as Wal-Mart, Gap and The Home Depot are taking an increasingly targeted approach to the promotions and discounts they make available to consumers, with offers now frequently varying on a store-by-store basis.

The National Retail Federation recently found that 21% of American retailers are currently using "markdown optimisation" software to help them tailor price reductions to specific outlets, while a further 33% plan to do so in the next 18 months.

According to estimates from Karabus Management, the consultancy, these companies could improve their gross margins by 4%, while "sell-through" could also increase by 15%.

Wal-Mart, the world's biggest retailer, currently pledges to meet the prices of any of its local rivals as advertised in print.

Tara Raddohl, its senior communications manager, said the Arkansas-based firm also frequently amends its local prices as appropriate to ensure it is "competitive with other surrounding stores."

Among other initiatives, Wal-Mart is planning to launch a new scheme later this year that will allow shoppers on its Pulse of the Nation panel to pick some of the products it sells.

This programme will mainly focus on "non-food" items like clothing and gifts, which the company exports from markets such as China.

It forms part of Wal-Mart's effort to "use digital in a much more practical way," said Rick Bendel, the discount giant's international chief marketing officer.

"When our buyers in China are buying products nine months in advance, we will give them a phone, they will take a picture of the product and email it to customers, and 1,000 customers will vote on whether we buy it," he added.

Gap, the apparel chain, has similarly offered a number of bespoke promotions in different stores across the US to reflect local tastes and stock levels in individual shops.

It has also offered short-term discounts to the families of military personnel in one of its Old Navy stores, and now does so once a month after the initial idea proved a success.

Speaking earlier this year, Glenn Murphy, the apparel group's ceo, said "we have done a lot of localisation" and "become much more astute and dedicated to what the right pricing strategy is in each one of our brands."

Other retailers that have employed such a targeted system include Sears, the department store group and owner of Kmart, which has used these types of discount to sell clearance items.

Macy's has also adopted this approach as part of its My Macy's programme, and is "thinking through" rolling out this strategy more broadly, according to Jim Sluzewski, its svp of corporate communications.

Carol Tome, cfo of The Home Depot, further argued that such an area-specific approach effectively "allows you to be more surgical and dynamic" when it comes to pricing.

"Rather than marking down by entire market, you can use your markdown strategy depending on the sell-through in each store," she added.

Data sourced from Wall Street Journal/Daily Telegraph; additional content by WARC staff