Are Christmas Sales Real?

Like many others I started my Christmas shopping during Thanksgiving week.

My wife brought home a Lands’ End catalog from the hair salon she goes to that advertised 30 percent off all items, plus free shipping.

Even though I knew better, that 30 percent off coupon made gift shopping more exciting. I focused more on the alleged savings than on what the items actually cost me.

And that is exactly what retailers want us to be – excited by the prospect of getting a deal.

The reality – as was pointed out in a front-page story on the Wall Street Journal that week – is that the sales at most retail stores are just an illusion. “Retail theater” is how the reporter, Suzanne Kapner, called it.

At most stores many of the discounts aren’t really discounts, they are the prices retailers expect to receive.

“The common assumption is that retailers stock up on goods and then mark down the ones that don’t sell, taking a hit to their profits. But that isn’t typically how it plays out. Instead, big retailers work backward with their suppliers to set starting prices that, after all the markdowns, will yield the profit margins they want,” the article points out.

“The retailer and manufacturer may have together marked a price that they are never expecting an item to fetch. For example, a sweater may list at $60, but the store and the garment maker may have already agreed to sell it for $40,” Burt Flickinger, III, managing director for Strategic Resource Group, a retail consulting firm, told KPCC public radio.

When a store sells the sweater for $20 off, consumers may think they are getting a great deal, Flickinger said. Some shoppers might assume that the stores aren’t making much money, when in reality, the retailer and the manufacturer aren’t sacrificing their profits.

The Journal gave one example of how the fake discount actually works at a major retailer that wasn’t identified:

A sweater is purchased by the retailer for $14.50. The suggested retail price is $50. Some sweaters sell at that price, which gives the retailer a lot of profit. But then the sweaters are marked down to $44.99. Still a lot of profit. Then the final price is $21.99, still a tidy profit. In the end the sweaters sell for an average of $28, producing a 45 percent gross profit for the retailer.

Many retailers also juice up their sales by marking up their prices prior to Thanksgiving so that they can create the illusion of greater discounts.

Price-tracking firm Market Track LLC did a study for the Journal checking the online price fluctuations of 1,743 products in November 2012. On about one fifth of the items prices were bumped up an average of eight percent.

So how do you know whether you are getting a real bargain?

It is not easy. One method I use is to comparison shop using three sites: Amazon, eBay, and Walmart. Amazon is my go to place to shop and for price comparison. Besides frequently having the best prices, reviews left by shoppers are incredibly helpful in deciding whether the product is as good as is claimed.