Rollercoaster pricing in Australian retail

It's just after Boxing Day 2018, and I'm studying the news feeds for interesting observations about the barometer of Australia's retail landscape.

It's too early to call, so we will take a few punts on how the season plays out.

Comments from our PM urging Australians to spend, spend, spend are just crazy examples of desperate measures to jumpstart a rapidly contracting economy suffering hangovers from the financial services scandals, property bubble corrections and politicians attempting to plump up their GST coffers in an election year.

Xmas is a fascinating time. 

We all spend big on gifts, food, and beverage celebrations, but the real movements in big spending build like a volcano to erupt on "sales" campaigns promising huge discounts from Boxing Day.

You can go to the Hunger Games if you are willing to endure traffic congestion, parking frustration, and overcrowding.

The incredible effort and stress are not worth the reward when we are supposed to rest or relax.

So instead, these savvy consumers are reverting online to research, compare deals and place orders. 

There are other periods throughout the year when retailers chop their prices, hoping for a sales surge.

Headlines grab attention, so it's newsworthy to flaunt big numbers like consumers' spending in a day.

Whether it's an accurate measure or a rough estimate doesn't matter as it's never actually challenged or reconciled, long forgotten days later.

A clear postulate of this season's retail reporting has been a big emphasis on drawing battle lines between online retail and "bricks & mortar" - with a consensus conceding online is taking greater sales away from physical stores each year.

It's certainly not breaking news this war has been raging for ages. Still, it's only now that the Retail Association (a large retailer lobby group) is conceding that shopping habits have changed significantly.

No surprise the allure of department stores has faded with dire predictions of becoming obsolete - following some big-name retailer closures in the US, unless these department stores can change their offerings to attract shoppers.

Maybe I lack the fiscal prowess of a traditional retailer because I can't understand the economics of selling products at price X for 360 days a year and then offering those same products 30+% cheaper for a couple of days.

How that plays out with the psyche of your customers becomes an interesting paradox.

Will buyers hold off spending until the sniff of a discount appears, or will it condition shoppers to abandon loyalty and behave transactionally, jumping from one deal to another?

We suspect it's a case of both and much more that's not helping these businesses.

More to the point, what does that say about the everyday pricing of products at retailers that can afford to sell with deep discounts?

Only chumps will pay full price, or is it called a convenience or immediacy tax when you pay full price?

The financial engineering behind discounting is complex and risky, and only smart players like supermarkets and Bunnings have this tricky game mastered.

They can only achieve this with the help of their massive information warehouses containing billions of sales transaction data and analytics that intelligently model various scenarios and forecasts with incredible accuracy.

They are developing a scientific understanding of how people spend their money in a predictive manner.

However, many retailers need more elaborate sales analytics and instead embark upon discounting programs in a desperate attempt without any basis or understanding of the long-term impact on their business or the loyalty of their customers.

The $1 milk and cheap groceries entice you into the store on the assumption that checkout spend contains a bundle of other full-priced and higher-margined products.

It's conveniently called portfolio pricing, using profits spread across the checkout to fund individual promotional campaigns.

These marketing tactics are typically only viable in segments where the number of vendors is limited to just a few, and the opportunity to capture more spending has a higher or real probability.

It's still being determined how retailers like Harvey Norman, JB HiFi, Rebel, Myer, or David Jones benefit when shopping primarily focuses on a single item.

Exclusive products are no longer a reliable differentiator in a world of easy comparison, leading consumers to make trade-offs.

Consumers are also a lot smarter.

Most people know that bed manufacturers make the same products for different retailers and change the model number or subtle cosmetics to create this false illusion of a product's exclusivity.

Those products are always on sale at any time of the year, and the concept of a sale discount for these products becomes a default offering.

Often, it's not the retailer paying for the discounts as the price of "entry" for a supplier to have their products sold in a large national store includes forced contracted conditions such as rebates and sales discount periods.

In other words, the supplier has to either partially or fully fund the discounting under the guise of "increased volume opportunities" and "long-term competitive sustainability".

Physical retailers have increasingly adopted omnichannel strategies to compete with growing online channels.

"Click-and-collect" is often considered an ideal solution by narrow-minded retailers.

However, in some countries, "click-and-collect" growth has well and truly stalled and even retreated, offering no real advantage for a consumer other than a simple or basic benefit of avoiding the checkout, which in many instances can be even more of a hassle queuing and confirming identity in the click order collection zone.

In our own space, for at least five years, we have planned and then abandoned the concept of "click and collect" cafe+retail shops in Melbourne, Sydney and Brisbane to provide more convenience to our customers and, at the same time, reduce many of the daily pains we experience with freight incidents.

Each time we come close to wanting this offering, the numbers won't work at literally $500K per year cost per outlet.

Ultimately, this commercial burden would add many $$ per kilo to every item we sold, rendering us less competitive and the real risk of distraction from our main game - roast, pack and send super fast.

Rollercoaster pricing of goods and services in Australian retail erodes trust, loyalty and respect - driving consumers into alternative marketplaces.