Ragtrader Assia Benmedjdoub gives ragtrader.com.au members an exclusive weekly wrap of the market.
I love shopping.
I love a cheeky 20% wink off the total charge.
But how much genuine value is there in a discount?
This week, the Australian consumer watchdog instituted proceedings against online retailer Kogan in the Federal Court.
The ACCC alleges that Kogan made false or misleading representations about a 10% discount promotion, in breach of the Australian Consumer Law.
Immediately prior to the promotion, the ACCC alleges Kogan increased the prices of more than 600 products and in most cases by at least 10%.
While the dangers of discounting are not always this clear cut - or, if proved true in the Federal Court, unethical - there are less apparent side effects.
Footwear retail giant Accent Group is 12 months into an anti-discounting strategy, or as CEO Daniel Agostinelli dubs it: "no lazy retailing."
While the company still has traditional June and Boxing Day sales, it now refrains from year-round activity to drive comp sales.
Contracted margins, cluttered stores and diluted branding were the side effects of pursuing this knee-jerk strategy.
So instead, Agostinelli and his team now prioritise:
1. Working with suppliers on differentiated and exclusive product launches.
2. Executing a flexible fulfilment model allowing customers to access inventory across all channels and all stores.
Does it work?
Accent Group reported a record $32.2 million in net profit after tax for the six months to December 30, 2018. That's a 27.3% improvement on the previous corresponding period.
The case illustrates one way to wean the industry off discount-led retailing.
But, of course, there are other hidden costs to consider outside contracted margins.
What does that margin mean if your business operates to fixed costs and; how many additional sales are required in order to achieve the same profit?
Let's assume you are a boutique retailer, and you achieve a 60% gross profit margin on the sale of footwear.
So your cut from a $100 pair of sneakers is $60.
You usually make $1000 worth of sales a day with a gross profit of $600.
You notice that all stores in your area are unseasonally on sale, so you decide to execute a 20% off campaign.
Now in order to pay your rent, staff and overheads, you still need to make the same amount of revenue to break even.
That means your daily sales need to be $1500 to hit your target.
This is not to say the figure is unattainable or absolutely beatable - I've seen some brilliant promotional campaigns in my time as Ragtrader editor.
But what it does highlight is the importance of understanding how a discount can eat into your coffers.
The answer is manifold; it's not to artificially inflate prices prior to promotion, to withold all promotional activity or to use aggressive promotional activities to break even.
It's to consider your business as a whole. Product, branding, marketing, channels, dispatch, service, convenience and price.
Otherwise that cheeky wink could turn into a total shut eye.