Has Christmas discounting gone too far?

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Walking down Oxford Street one week before Christmas, I was struck by the number of posters in shop windows offering deep discounts and 3 for 2 offers. Were we witnessing more discounting pre-Christmas than in previous years and how significant was this?

In preparation for this year’s Premium Market Report, I’ve been talking to leading industry and retail analysts to gain a better understanding of the impact discounting is having on the retail economy. “Discounting certainly felt as though it was more prolonged and deeper for Christmas 2011, although this may have been as much a factor of savvier ad noisier marketing as it was actual price reductions,” Bryan Roberts, director of retail insights, Kantar Retail, told me. “Prices, while a fairly blunt instrument, are obviously still a key way for retailers to generate traffic and spend.”

The consensus is that after a poor start to 2011, retailers went into the Christmas period with too much stock, so discounting was inevitable.

Richard Hyman, strategic advisor to Deloitte’s retail practice, commented to me that after years of importing price deflation, we are now importing price inflation, meaning that unit sales are trending down. “This will undoubtedly have an impact on margins.”

What does this mean for premium beauty? Only Debenhams discounted beauty and fragrance during its promotional periods, but at the higher level of 15% between 6-11 December, compared to 10% at other times. Of course, John Lewis were forced to offer the same discount while the Debenhams promotion was running, due to their policy of being “never knowingly undersold”. But a number of other leading premium beauty retailers refuse to discount pre-Christmas, preferring to focus on their value gift offer.

The problem with discounting is that consumers are trained to expect lower prices at the till. But if retailers decide enough is enough and stick to full price in the next run up to Christmas, the doom-mongers may actually be proved right.

A fuller analysis of the discounting issue will be available in The Premium Market Report 2011/2012, which is published in March.