Chasing comps, impossible game.
I have been in retail or associated with it, for 25 years (gasp). During this time I have witnessed a ton of brilliance and absurdity. It’s been so long since I was part of the dotcom boom of 1999, and the bust. Some may call me a dinosaur, I prefer to be a well-seasoned spring chicken.
The one constant I have witnessed is the constant chasing of “comps”. For those not in the retail space, it all started with “same-store sales comps”, just called “comps”. Defined as “stores open more than one year, what is the gain of sales year-over-year”. This metric is key for retail stores, coupled with average ticket and average per square foot.
In the online space, this measure is no different and equally important. Therefore modern-day retailers are still chasing the positive comp.
This allure is where bad habits start forming and why we have “Black Friday” sales that start weeks before Black Friday and why “Last Day” is followed the next day by the not-so-surprising “Sale Extended”.
The problem is that in order to comp last year, you need to do something different and the easiest route is to extend a sale. To me, this is brand destruction.
Once you start down the path of sales or coupons, it is never-ending. You can’t stop it.
Look at Bed Bath & Beyond and those 20% off coupons. They did try to make them expire, but that failed. Then they tried to make 20% turn into 10% at expiration, which also didn’t work. The problem? Customers are trained. Kohl’s has this same problem, as does JCPenney, who tried very hard to reimagine itself but couldn’t.
Discounters are trapped, and the customer grows to expect it.
Non-discounters are following the same path. On Tuesday at 9pm, a very prominent customer warned us of a massive sale they were running the next morning at 7am.
I have no idea about their promotional calendar, but if I had to bet, their Cyber Monday sales were off and, in a meeting on Tuesday, someone found the solution: Run a new sale on Wednesday.
The problem is, what do you do next year? You add yet another sale to comp an additional sale this year, run a sale on Thursday or Friday?
You are chasing comps and throwing good money at a bad problem. Margins are compressed with sales and, unless you are selling consumption-based products, you are just pulling sales that could occur at full price forward. Trading lower profit today for less sales tomorrow.
This is where brand destruction starts. You run enough sales that customers no longer pay at full price and wait for a predictable sale.
There is a question of if this is inevitable. That is a fair question. Those that were diehard, day-in-day-out pricing, have mostly caved over the years. The only discounter that I can think of that hasn’t is Costco. Luxury brands have done a decent job steering clear of the mayhem.
We used to attack this problem from a completely different angle. We never ran sales on core products. Instead, we did special buys and used scarcity to appease customers looking to save money. Special buys carried higher margins so our “sales” were at or above our normal operating margins and we weren’t trading tomorrow’s dollar for today’s sale dollar.
This is one tactic but there are many others, like bundling to drive average order value (AOV) up and total variable contribution margin higher.
This blog could turn into a book and is often a longer conversation I end up having with those in the retail space when they are scratching their head around margin and sales.
The real gist is, chasing comps is dangerous and could be destructive to your long-term brand.