Many Discounts, Few Deals In December, It Takes a Calculator to Avoid Retail Traps; Why We Fall for the Number 9

By CARL BIALIK, ELIZABETH HOLMES and RAY A. SMITH (Karen Talley contributed)

Tick-tock, watch the clock, stores are telling

holiday shoppers.

Looking to inject a sense of urgency into theholiday shopping drill this year, many major storesare running their own versions of the online "flash

sale," cutting prices, in some cases for just a few

hours at a time.Limited-time offers are just one item in the

 battery of sales events, "savings passes," buy-one-get-one-free offers and volume discounts that retailers are

letting loose at the height of the December shopping

season.Companies want to outdo rivals and encourage

shoppers to spend more than they might haveotherwise, but without giving away the store. The

stakes are high, with holiday sales contributing as

much as 40% of annual revenue and 50% of annual profit.

With harried shoppers hard-pressed to do the

math, retailers put a lot of psychology into their

holiday prices. They decide which numbers will be most enticing, and whether "50% off" sounds better than "buy one

get one" offers—known as "BOGO," in industry parlance.Gap Inc., for example, offered 50% off everything in their stores until 10 am on the Friday after Thanksgiving. The

next day, it was selling kids' clothing for flat prices of $5, $10, $15 and so on. That meant girls' tulle skirts, with a full

 price of $29.50, were available for $15 on Saturday—25 cents more than on Friday, when they cost $14.75.At Macy's flagship Herald Square store, a percentage-off promotion—30% off plus an extra 20% off—doesn't add

up to 50% off.Similarly, at Gap's Old Navy division, jeans promoted in previous years at 50% off the full price of $29.50 were

 promoted this year at $15. "The lift in sales is significant," says Tom Wyatt, Old Navy president. "The customer can

see [the price] from 20 to 30 feet away."That was a switch for shoppers accustomed to buy-one-get-one-free deals and steep percentage discounts. In the

 past few days, Gap has been combining BOGO and percentage-off, with "buy-one-get-60%-off-the-second" offers

throughout its stores. And late Tuesday, Gap announced on Facebook that from Dec. 15 through Dec. 20 it will take

30% off everything in stores plus a "bonus deal" each day.A few major retailers have found ways to buck the discounting trend, making the most of signs that consumers

may actually lift holiday spending this year following two years of thrift. Saks Inc. is discounting cashmere sweatersand fall designer fashions for the holidays, but it also is running fewer

sale days and offering fewer and smaller discounts, says Stephen

Sadove, Saks chief executive. At American Eagle Outfitters, men'sflannel shirts are priced at $29.95, up from $24.95 last year, accordingto Wedbush Securities retail analyst Gabriella Santaniello—an example

of a retailer trying to "go to certain areas, or categories, where they feel

customers will pay" fuller prices, Ms. Santaniello said.

But in most of the mall, it's an all-out bargain war, with storescarpet-bombing shoppers with deals. On Monday, at Garden State Plazain Paramus, N.J., Aeropostale Inc. was promoting discounts of up to

70% on its teen apparel. AnnTaylor Stores Corp. has been offering 30%off all full-price merchandise in recent days, compared with an offer

this time last year of 40% off one full-price item.

 

Retailers count on buyers' cognitive shortcuts to spur sales. A recent study

showed that when shopping in a store, by catalog or by website, people are likely tospend more when they see high prices around them, on items completely unrelated towhat they want to buy. And merely setting prices with the number nine at the end,

whether it's $1.99 or $99.99, can make consumers feel they got a deal."People tend to be cognitive misers," says Jeff Galak, assistant professor of

marketing at Carnegie Mellon University's Tepper School of Business. "You don'thave time to process every single digit that comes your way. So you use the left digit

of a price."Flash sales—taking a page from members-only fashion websites like Gilt Groupe

and ideeli, which surged in the recession—are one way stores limit pain. Last

Saturday, starting at 6 a.m., J.C. Penney ran "7 hour steals" offering cotton bathtowels for $3.69, reduced from $7.99, and 70% off gold and sterling silver jewelry.On Monday, Gap Inc.'s Banana Republic stores were offering 40% off full-price

sweaters from 11 a.m. to 2 p.m. local time. Meanwhile, teen retailer Abercrombie &Fitch gave online shoppers until 8 p.m. eastern time Tuesday to qualify for a $25 gift

card by spending $100—an offer that the retailer last year was extending from Thanksgiving to Christmas.Timing discounts to expire makes shoppers feel lucky, says Prof. Galak. "Exclusivity is really what drives it," he

says. "People feel like they're getting a deal."These kinds of sales are hard for stores to execute, with frequent price changes likely to confuse customers and

require more manpower. Kohl's Corp., which changes its promotional offers several times a week during the holidays,has installed all-electronic signs in 100 stores showing prices that are updated automatically through corporateheadquarters. The intent is to let customers know exactly what they will pay without eating up a lot of employees' time,

says Kohl's CEO Kevin Mansell. ("The response we've had from consumers is spectacular and the improvement it's

given us, in terms of productivity on payroll, is dramatic," Mr. Mansell says.)For consumers, though, evaluating deals isn't easy without a calculator. Shoppers at J.C. Penney last weekend

qualified for a "JCP cash" coupon by spending more. Discounts of 20% were expressed as $10 off a $50 purchase, $15off a $75 purchase, and $20 off a $100 purchase. With much of the store on sale, it would take a lot of purchases to hit

the dollar marks.In one Black Friday ad, Sears promoted wool coats priced at a flat $39.99, a radar detector at 50% off and a

refrigerator with an impressive $1,300 off. The big number is eye-catching, says Frank Luby, a partner at Simon-Kucher & Partners, a Cambridge, Mass., consulting firm. Retailers seek "bigger, more impactful, context-specific

numbers," he says, even when the math works out the same.Offers that encourage volume purchasing—whether it's two-for-the-price-of-one or discounts that escalate with

money spent—play into consumers' determination to get the best bargain possible. Macy's Inc. calls them "multiplierdeals" and uses them only on sales-event days during the holidays, saysMartine Reardon, executive vice president of marketing and

advertising. "You don't want to overuse a good handle," she says. "The

customer gets tired of that. The novelty wears off."

With these kinds of offers, retailers are saying, "I want to plant inyour mind the idea of buying larger volume," says Sean Ryan, a partnerat management-consulting firm A.T. Kearney. Percentage discounts

may not have that effect.There's something a touch absurd about holiday bargain hunting.

Retailers love to promise "savings," even though they really wantshoppers to spend more. Consumers, meanwhile, often buy more than

they need to get the "savings," forgetting that the best way to save

money is to walk out of the store."Perhaps one of the most serious socially irresponsible things

marketers do is discounts," says Robert Schindler, professor ofmarketing at Rutgers University-Camden's school of business.

"Marketers are playing on our weakness, to our detriment."

*This article appeared in the Wall Street Journal  on December 15, 2010.