Are end-of-season 'sales' the best way to clear stock?

It is a received wisdom that selling directly to consumers in sales is the best way to achieve maximum returns. However, with new technologies and emerging markets Phil Bird, chief executive of online auction technology platform provider Perfect Channel, questions whether this is still the case. "Are ‘sales’ for everyone?" he asked.

The benefits of sales are well discussed; increased foot or website traffic, sales volume and ultimately happy customers. “The enduring image of sales is the crush of people waiting for department store doors to open on Boxing Day and rushing in full of excitement,” commented Bird. “Sales offer a tantalising mix of footfall, excitement, commercial visibility and the chance to monetise depreciating assets.

“But buying ‘off price’ is a sensitive issue; it should be part of a considered strategy rather than a matter of course,” he urged. As with every business decision, he highlighted how offering discounts has intrinsic risk as well as reward. He also outlined the potential to devalue brands, lower customers’ price expectations, and making businesses dependant on short-term boosts as potential risks.

“We also have to think about sales creep,” said Bird. “British Retail Consortium figures show that prices in December 2013 fell at the fastest rate for seven years. Retailers are increasingly cutting prices in advance of Boxing Day to gain competitive advantage – devaluing the sales themselves.” 

“There have always been alternatives to sales for businesses that value brand perception and profit margins above sale volumes,” he continued, “and technology is now increasingly opening avenues for brands and retailers.” 

He cited ‘members only’ third-party discount websites as one example that could offer the equivalent of brick-and-mortar outlet stores for luxury brands. Individual brands have even adapted this model into their own discount websites; some with ‘waiting lists’ enhancing the perceived brand value rather than diminishing it.

With online sales now driving more than half of retail growth, an online storefront is extremely valuable. But particularly for exclusive brands, selling at discount prices – whatever the channel – is still a risk, according to Bird.

He is also working on a new approach that combines the 'Members Only' tactic with auction technology. Bird said he believe this will change the market, allowing brands to enjoy increased return and an opportunity for consumers to benefit from pricing set by their demand. 

"Clearing stock wholesale does sidestep the issue of brand value but, as with every stock-clearance decision, it’s a matter of risk and reward," he said. "A typical wholesale return on an asset like this might be 40% in a conventional transaction but, particularly for out of season or rapidly-depreciating stock, this can be the best option."

The value of online wholesale transactions is not to be undervalued, advised Bird. “Last year’s smartphone might have depreciated significantly in the UK, but may be very much in demand in other countries. Wholesale stock clearance using online platforms gives sellers access to these markets.”

He added: “It’s also wise to consider different sales models, using online auctions is one way businesses can increase return on goods. It’s a conversation, allowing retailers and buyers to open a dialogue in a price-sensitive relationship. This can often provide invaluable information and a higher market price than expected – returns can increase between 5-20% just by switching to an auction model.”

Bird concluded: “As the saying goes, ‘it’s only worth what someone is willing to pay’ so, when you’re considering clearing methods for the next season, the best solution will be one that preserves perceived value, results in the best possible return and leaves everyone feeling like they’ve won. What mechanisms form that solution is best decided on a business-by-business basis.”

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