Are sales events discounting long term value?

We all talk about retail disruption, but retail has always been prone to disruption and reinvention. Over the centuries, we’ve seen the focal point shift from village to town to out-of-town to on-line and now to mobile. Whether its transport or technology that’s empowered consumers, the retail landscape has evolved dramatically forcing savvy retailers to adapt accordingly. And retailers are really adapting fast - it’s one of the core competencies of a good retailer.

Similarly, I’ve watched sales move from the shop window to the smartphone app. Earlier this month I witnessed the growing phenomenon that is Singles Day generate 268.4 billion yuan (around $38.3 billion). With a heavy emphasis on live streaming, this was no ordinary sale, but a shopping experience in itself. It’s only in its 11th year, but just like the smartphone it has caught on quickly. Singles Day now easily dwarfs the $6.8 billion in sales generated on Black Friday in the US and its reputation has spread beyond China to become a global phenomenon. It’s yet another disruptive force on the radar of retail.

However, this has become yet another sale in a long line of seasonal sales. Singles Day joins sales events dates like Black Friday, Cyber Monday, Super-Saturday, Mega-Monday, Boxing Day, New Year’s Day and then the lead up to Chinese New Year. This creates a perpetual backdrop of sales which could create a sense of fatigue among sales saturated consumers. As they increasingly play a waiting game, choosing only to buy a product when the next sale inevitably arises, platforms have defined a consumer behaviour that directly challenges traditional retailers, serving only to destroy value. In this context sales are becoming the tail that wags the dog - a dangerous tactic that if used unwisely erodes margins and complicates stock management. There’s a fine balance between the ugly scenes of people fighting over flat screen televisions in the UK on Black Friday in 2014 and the empty stores a year later when fickle consumers chose to stay home and shop online (crashing many retail websites in the process).

Retailers have tried to take back control. Some have actively taken a stand not to participate; others have adopted smoke and mirror practices, risking consumer dissatisfaction and disillusionment – the intense shopping experience the sale creates marred for them by exaggerated discounts and post purchase cognitive dissonance. For a short-term tactic, sales can have long term impact.

But the frenzy of bargain-hunting is also at odds with other emerging factors shaping consumer behaviour. Consumers are striving for more transparency and trust. They are increasingly demanding authenticity and traceability in supply chain, to know the provenance of all aspects of a product. They want a product that reflects their own values, whether it relates to human rights in the work place, deforestation or plastic in landfill, and are making choices based on these values. To achieve this, more and more consumers say they are prepared to pay more (many expecting it as a new normal at the same price), and some are even prepared to buy less – factors that sit in stark contrast to the conspicuous consumption that Singles Day brings.

A growing number of investors feel the same way too. EY research in 2018 saw 49% of investors immediately ruling out investing in a company with a risk or history of poor human rights practices – up from 32% in 2017. 48% immediately ruled out investing in companies with a risk from climate change – up from 8% in 2017. 52% immediately ruled out investing in companies with risks in their supply chain tied to ESG factors – up from 15% in 2017. This sharp acceleration recognises the growing risk exposure that reputational damage brings, and consumers and investors are both voting with their wallets.

Appealing to consumers and stakeholders in the short term is important, but it must be within a longer-term context. More companies are now thinking about their long-term value and how to articulate it – the days of understanding market value from the balance sheet are ebbing away as intangible assets like reputation, culture, human capital, innovation, corporate governance and ESG initiatives count for more. There is an ongoing shift from the view that the primary purpose of companies is to meet short-term financial goals for shareholders (shareholder capitalism) to the view that corporations are better able to deliver long-term value when they understand and address the needs of their customers, employees, investors, regulators and other key stakeholders (stakeholder capitalism).

When so much of retail is anchored in people, culture and society, the value story is fundamental for retailers to get right. Anticipating where value will be created and how it will contribute to success is crucial. Finding better ways to identify, measure and communicate value, including thorough narrative disclosures and non-financial metrics, can lead to investment and innovation that promotes growth and value creation. It allows the strategic review of activities, removing or improving those that aren’t generating sufficient value, leaving retailers free to play to their strengths and innovate. Right now, this is top of mind for big retail brands.

So where do sales events fit in? Are they really part of a retailer’s value story? Certainly, there’ll be no return to a sale merely being a last attempt to sell leftover stock, real time demand-sensing and agile inventories will put paid to that. But they could morph again to become a new retail disruptor: as dynamic pricing becomes the norm sales could become consumer centric, matching price with the value of the individual relationship.  Or sales could target specific tribal values, driving loyalty and deeper engagement with the consumers that matter to them. As consumers move beyond the transactional in favour of experience and shared value, using sales to build and reinforce individual consumer relationships could be the answer.

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