Small retailers feel extra pressure to offer discounts this holiday season

The pressures of inflation and economic uncertainty are expected to mean significant discounting among many retailers this holiday season.

In fact, an online shopping forecast by Adobe reports that discounts will hit record highs (upward of 32% off regular retail prices) this year, as retailers contend with oversupply and a softening consumer spending environment.

“We’re expecting to see some of the strongest discounts we’ve seen on record across many categories,” says Vivek Pandya, the San Francisco-based lead analyst for Adobe Digital Insights, which publishes research on e-commerce trends.

Discounts for computers are expected to be as high as 32% (up from 10% in 2021), while electronics discounts are set to hit 27% (up from 8%), and toys at 22% (up from 19%), according to the report.

Some of it is that retailers were left with excess inventory as they overbought to contend with supply chain constraints, he says. On top of that now consumers are pinched spending more on food, housing and other necessities, Pandya says.

In that environment, “consumers have to determine what they can spend on necessities vs. discretionary items," he says.

While large retailers can afford to offer bigger discounts, it’s a challenge for smaller retailers. But they’ll still feel pressure to offer savings, says Thomas Borders, vice president and general manager at Inmar Intelligence, a data and technology company serving the consumer packaged goods and retail sector.

“It really is putting pressure on smaller and smaller stores to entice and offer prices competitive with the [larger] Tier 1 retailers,” he says.

Buddy and Joe DeMarco, co-owners of Saltwater Long Island, which sells Long Island-branded coastal apparel both online and in storefronts in Huntington Station and Westhampton Beach, say they feel they need to offer greater discounts for the holidays in order to compete.

“This is the first year we’re going to this extent,” Buddy said. Being in Walt Whitman Shops in Huntington Station with nearby retailers like Vineyard Vines, a national chain, creates more pressure.

Joe says typically they’d offer a deal around the holidays to buy four items and get 25% off the entire bill. This year, it will be 25% off the entire order regardless of how many items. An added perk: If a customer spends a minimum of $50, they get a free hat, Joe says.

Starting early

They’ll start offering the promotion four days earlier than usual this year starting Monday and running until Cyber Monday, Nov. 28, he says. And they’re extending a pop-up store they will have at Smith Haven Mall in Lake Grove for the holidays from seven days last year to over a month this year (Nov. 23-Dec. 24).

This is in the wake of their own manufacturing, freight and labor costs going up 25% to 30% year-over-year.

“We know our customers' expenses have increased quite a bit with inflation so we’re trying to accommodate for that,” Buddy says.

Retailers though have to be cautious not to discount themselves out of business, says Nicole Penn, president of EGC Group, a Melville-based marketing and digital services firm.

She said among EGC’s clients she finds if they’re discounting, it's on old inventory they need to move.

She said some alternatives to discounting include bundling of similar products (i.e. a camera, bag and other accessories), which offers a convenience factor; developing special VIP perks and experiences; offering added perks like free gift wrapping; or awarding a gift card to shoppers who spend a certain amount.

Tandy Jeckel, owner of TandyWear, a clothing store that sells both online and in a storefront in Commack, says she finds offering a free gift if customers spend a certain amount is welcomed by clientele. She's offered items like a free sweatshirt or graphic tee.

In general, “we don’t like to devalue our product by having sales all the time,” she says.

She says they typically do big doorbuster sales on Black Friday in-store, but will likely extend that to online this year. So folks might get a $50 sweater for $19 as an example.

They also at least twice a year offer 20% off the entire purchase, which she says generates customer excitement and turnout.

If you offer constant sales and discounting, after awhile “no one cares anymore and it becomes redundant,” Jeckel says.

Borders says smaller retailers need to think creatively because they can only discount so much.

“Retailers have to look outside of just price as a way to be competitive,” he says.

For example, perhaps you can create a better returns experience or change your returns policy to be more lenient during the holidays, Borders says. 

But if you have to discount, think of it "as part of a long-term strategic approach” to keep customers coming back year-round, Pandya says.