When Sears’ 824 stores across the nation reopen today after 42 hours of frenzied price cutting by bleary-eyed workers, they will be foot soldiers in a spreading revolution.
Heeding customers’ cries for stable prices, chain retailers such as Sears, Montgomery Ward and K mart have marked down thousands of items and are touting “everyday low prices” and low-price guarantees. And other chains, notably Target Stores, are also testing the idea of bringing in customers with dependable prices instead of relying on frequent special sales.
At least for the time being, the shift in pricing philosophy could mean a field day for shoppers who have long suspected retailers of inflating “regular” prices and have wearied of waiting for items to go on sale.
“Many shoppers who are busy . . . show no inclination to sit and look at the newspaper and wait for a particular item to be on sale,” said Bernard Sosnick, a retail industry analyst with Deutsche Bank Capital, a New York investment firm. “You want to go to a store, know that an item is at a fair low price and buy it. It’s an imposition to say you have to buy it (on sale) on the third Saturday in March.”
Part of the reason for this revolution in pricing traces to changing demographics and life styles. As women have entered the work force in record numbers, they have had to discard the notion of shopping around for the best deals. At the same time, escalating prices have prompted a search for value and dependability.
But with a constant cycle of one-day sales and high regular prices, chain retailers have frustrated shoppers and fostered a high level of skepticism.
“Consumers are very cynical about the retail pricing structure,” said Carol Farmer, a New York retail consultant. “Customers really think retailers mark prices up to mark them down.”
In many cases, stores have simply increased their prices--between sales, that is--to cover escalating costs of doing business. But that sort of cycle of sales and high regular prices has proven self-destructive to retailers, which must bear higher costs for advertising and for keeping extra inventory of sale items. Moreover, marking down items often hurts sales of similar products offering higher profit margins, retailers say.
Announcement Puts Spotlight on Prices
Sears’ announcement last week that it would briefly close its stores to reduce prices on more than 50,000 items and introduce more brand-name merchandise has put the spotlight on everyday low prices, even though the strategy is hardly new.
Wal-Mart, an Arkansas-based discount chain with stores in the Midwest and Southeast started by the legendary Sam Walton, has for years been thriving in small-town America with its low-price strategy. The retailer recently dubbed it the “always” program, with the slogan, “Always the low price on the brands you trust.”
And highly focused specialty outlets such as Toys R Us and Circuit City, a consumer electronics merchant, have also become powerhouses by offering dependably low prices on brand-name goods, as have the newer wholesale clubs such as Price Club and off-price chains. Circuit City goes many competitors one better with a policy of refunding a price difference plus 10% of the difference if a customer finds a product advertised lower somewhere else.
Target, a Minneapolis-based discount chain that has had a policy of heavily advertising sale items in weekly circulars, began testing a consistent low-price strategy last fall in four stores in Knoxville, Tenn., and Albuquerque, N.M. “Results have been encouraging, but not conclusive,” said Gail Dorn, a spokeswoman for the chain, which operates 349 stores, including 96 in California.
Even K mart, already known for low prices, has recently refocused efforts to match or beat competitors’ prices with its “very important price” policy. In 1987, the chain began reviewing a list of 3,000 items every 60 days, including popular health, beauty, pharmaceutical and home improvement products, with an eye toward reducing any prices found to be lower at competing chains. Early in February, the program was expanded to cover 5,300 items, according to spokeswoman Barbara Palazzolo.
Strategy Aims to Arrest Steep Erosion
For Sears, once the country’s uncontested retailing leader, the strategy of offering brand-name merchandise at lower prices is designed to arrest a steep erosion in market share. In recent years, customers who once routinely shopped at Sears for private-label clothing, Craftsman tools and Kenmore appliances found that they could often get better value and selection on items from toys to televisions at other stores, ranging from specialty clothing operations such as the Limited to consumer electronics outlets such as Circuit City.
Sears also lost business to off-price chains that offered daily discounts on popular brands.
At Marshalls, a fast-growing chain that is the nation’s leading off-price retailer, brand-name clothing and household items sell for 20% to 60% below department store prices.
With the department store strategy of putting items on sale and then going back to regular price and then down again for one-day sales, “it’s very difficult for a customer to really depend on an everyday low price, certainly in a department store,” said Francis H. Arnone, president and chief executive of Marshalls, based in Woburn, Mass. “Our strategy is that we are predictable and customers can get the one-day sale price every day.”
There is a trade-off, he acknowledged. In exchange for bargains, shoppers sacrifice service and continuity of selection in sizes and colors.
But even high-end department and specialty stores that pride themselves on service and dependable assortment say price is very much an object, even if the policies are more subtle.
Both Nordstrom and Bullock’s post signs at registers to inform customers that their policy is not to be undersold.
“We follow a very aggressive pricing policy and bring in merchandise at the lowest possible price,” said Betsy Sanders, a vice president of Nordstrom who is based in Santa Ana. The store also sends workers into the field to scout out competitors that might be offering the same merchandise at lower prices.
If a shopper claims to have seen a purchased item elsewhere for less, Nordstrom refunds the difference--no questions asked. “We take the customer’s word,” Sanders said, adding that the store generally finds in its own follow-up research with competitors that customers tell the truth.
At Bullock’s, a division of R.H. Macy & Co., the policy is to refund the difference after first verifying the lower price with the competitor.
Sears’ strategy shift seems to appeal to its customers. Dennis Cooper, a retired General Motors worker shopping at the Glendale store before it closed Monday, sees “the new discount pricing as more of an incentive, rather than relying on a sale.”
“I don’t want to wait six months and count on having what I’m looking for go on sale. How would you feel if you bought a chair for $599" then came in later and saw it on sale for $299. “You’d think, ‘I’ve been had.’ ”
But shoppers who get a kick out of sales need not fear that the big push toward everyday low pricing spells the end of periodic markdowns.
“For us, there will be certain times of year where sales are entirely appropriate, such as after Easter, after Christmas and fall clearances,” said Michael Bozic, chairman and chief executive of Sears’ merchandising group. “But basically we’re saying to our customers that what you paid is more important than what you’re told you saved.”
Chicago-based Montgomery Ward, which beat its cross-town rival Sears to the low-price punch by reducing prices on thousands of popular name brands last year, also expects to continue sales to instill a sense of urgency in customers.
Consumer Still Expects Some Sales
“Our research indicates that, even with everyday low prices, the consumer still expects to see some sales,” said Chairman Bernard F. Brennan. “You can’t reprice your entire store and go to sleep.”
And May Co. California, a department store chain, figures it must maintain a lively schedule of one-day and other sales events to stay competitive. “We try to be very promotional with some category of merchandise or other . . . almost all the time,” said Chairman Edgar S. Mangiafico.
Indeed, Sears is finding that competitors are responding quickly to its new pricing program. “The retail community has decided not to give Sears an inch,” said Walter F. Loeb, an analyst with the New York investment house of Morgan Stanley & Co.
Given its somewhat tattered reputation, observers said, Sears will have to work hard to rebuild its constituency.
“The whole issue of credibility makes it much more difficult for a business to engage in an everyday low price strategy, particularly one that’s going away from a strategy based upon promotion,” said Carl Steidtmann, vice president and chief economist for Management Horizons, a consulting firm in Columbus, Ohio. “I think it takes a lot of trust.”
Researcher Melanie Pickett contributed to this story.
Related story in Business.