How to Have a Sale

I prefer to advice my clients to use relationship building marketing and advertising instead of weekly sales. Yet there are times when a sale is appropriate:

To Attract a Buyer, Make the Deal Irresistible

Given the relentlessly dismal retail sales numbers, consumers seem to have locked away their wallets and hid the key.

But some recent promotions show that shoppers will still chase a bargain, particularly one that seems unlikely to be repeated anytime soon. Even big-ticket items costing hundreds or thousands of dollars can be in high demand if they are priced right.

"The otherwise frugal consumer is willing to shell out for a blockbuster value," said John D. Morris, a managing director with BMO Capital Markets, "whether it's cash for clunkers, khakis or a cruise."

In the last month, promotions like the government's cash-for-clunkers auto purchase plan and JetBlue Airways' $599 monthlong flying pass have won over otherwise wary consumers.

The pattern appears similar to what is playing out in the housing market, where sales are rebounding from dismal levels a year ago as consumers take advantage of foreclosure sales and start to believe that prices have hit bottom.

That has not been the case with retailers, where consumers have held off spending for months, betting that a 40-percent-off sale was just a warm-up for an inevitable 50 percent sale. To overcome the newfound patience of consumers, many retailers are trying to spur impromptu buying by putting definitive time limits on sale items. The tactic has resonated, especially with upper-middle-class to upper-class consumers.

"There are still shoppers that still have money," said Marie Driscoll, director of consumer discretionary retail for Standard & Poor's Equity Research. "They're just much more discriminating."

Luxury-goods retailers are finding buyers, at the right price. At TheOutnet.com, a Web site selling designer fashion at a discount, Alexander McQueen leather pants sold out at $1,002 (reduced from $3,340).

Rabbit-fur coats by Roberto Cavalli also sold out for $1,498 on Gilt.com, another high-end site, marked down from $5,030.

Hana Ben-Shabat, a partner in the retail practice of A. T. Kearney, said the consumer buying luxury items at a discount these days probably was earning $200,000 to $300,000 a year.

If that person's compensation was partly based on a bonus, overall pay has probably dropped significantly. That means that such consumers may no longer be visiting the likes of Prada and Gucci as often as they once did. But these buyers also know what such merchandise typically costs.

"They have a basis for comparison," Ms. Ben-Shabat said. "They see something that maybe last year was $2,500, and they see it below the $2,000 mark and they think, 'I will buy it.'"

Donald R. Grimes, an economist and senior research associate at the Institute for Research on Labor, Employment and the Economy at the University of Michigan, said many of these buyers sat out the recession, because they were either nervous about the economy or because they did not want to appear ostentatious.

But their confidence is slowly returning.

"Now, they feel, 'I've made it through,'" Mr. Grimes said. "They're definitely looking for deals."

JetBlue's promotion drew in Sam Rosen, a Chicago Web site designer. He was planning to spend $400 on airfare to attend a friend's bachelor party in Las Vegas this month. But when he saw a notice for JetBlue's "All You Can Jet" pass, Mr. Rosen jumped.

"I'm a smart enough guy to realize that for an extra $200, I could go wherever I want," Mr. Rosen said.

JetBlue halted the program last month, earlier than it had planned, when it sold out of the passes it designated under the plan. It has not said how many were available.

The first travelers begin using their passes on Tuesday; trips must be completed by Oct. 8. Along with his Las Vegas trip, Mr. Rosen will go to six cities before his month of flights is up.

He is visiting two places -- Boston and St. Martin -- where he has never traveled, and will work while on the road.

Another Chicago resident, Frank Earullo, could not resist the $3,500 rebate he received when he bought a Hyundai Santa Fe sport utility vehicle under cash for clunkers.

He was among the last of nearly 700,000 people who bought vehicles during the offer, which expired Aug. 24. It helped a number of automakers post better August auto sales compared with dismal results in 2008, although many analysts expect sales to fall sharply now that the offer no longer exists.

"They're pretty much forcing me to do this, it's such a good deal," he said of his new Santa Fe, bought with a trade-in of his 1999 Ford Explorer.

Other promotions, though less ambitious than the clunkers rebates, are succeeding with rare price cuts.

Zingerman's, a restaurant and food company in Ann Arbor, Mich., has for years offered a weeklong "bake-cation" seminar for $1,000, where students spend five days learning to make everything from croissants to pie.

This summer, it added a weekend version, for $500, and the first session sold out in days (a second has been added for October). Last month, Zingerman's also started a training course for food professionals on cheeses, and priced the introductory session at $975, rather than the $1,200 it plans to charge for subsequent sessions.

The offer attracted three participants from Dorothy Lane Market, a small chain of high-end specialty food stores in the Dayton, Ohio, area. The store has sent employees around the world for training classes.

Supervisors "won't cut corners when it's something worth our time to do," said Dave Mader, manager of specialty cheese at the chain's Springboro store.

Still, a broader recovery depends on the willingness of less-flush consumers to buy, and Professor Grimes said he did not envision a return to the kind of impulsive spending that seemed commonplace earlier this decade.

"People who are making $80,000 or $100,000 and who would go off to Disney World and blow $2,000 on a weekend, they aren't going to do that," he said.

Still, the popularity of cash for clunkers was a boost for economic morale, he said, and could bode well for similar programs down the road.

"At least it gave some optimism, and got people doing something," he said.

(Source: The New York Times, 09/09/09)

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