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The big discount battle in retail begins

Düsseldorf, Munich Shopping in Corona times? Many Germans think not. Although they could easily order on the Internet, customers are reluctant. Many online retailers report sluggish business. The shops on the net lure with competitive prices. At the sports companies Adidas and Nike, shirts, shorts and sneakers are half cheaper, H&M even advertises with discounts of up to 70 percent.

The big corporations are trying with all their might to get rid of their surplus goods – whatever the cost. Because winter items or spring fashion could be on the shelves like lead when the stores reopen after the corona crisis.

Many smaller retailers and manufacturers are therefore alarmed. They fear months of price promotions this year – with existential consequences. “A discount battle would be completely counterproductive,” warns Renata DePauli, boss of the Herrenausstatter.de internet store. “Every cut-down part means less revenue for the dealers in a difficult time.”

Entrepreneur DePauli depends on the manufacturers to accommodate her: “We are now talking to suppliers every week.” At the same time, she hopes that the fashion industry will change fundamentally. “Generally, we have to think about whether the goods are not being delivered much too early. No one needs winter clothing in July, ”says DePauli. The Munich native founded her internet shop more than 20 years ago. She wants to make unpleasant shopping as comfortable as possible for men.

The fashion industry is faced with a major dilemma: these days they cannot sell their T-shirts, jackets and trousers through the stationary boutiques and flagship stores. Because of the corona crisis, almost all of them are currently closed in Europe and North America. This is why the pressure is growing to sell the spring-summer collections via online retail. This increases the risk of a massive discount battle.

Dieter Holzer tries to avoid this. “Our online trade is still stable, without special discounts,” said the head of the fashion brand Marc O’Polo the Handelsblatt. In this way, he wants to ensure that sales, which have already shrunk due to the closings, do not fall even further due to extreme price reductions.

“75 percent of the goods ordered are already in the pipeline”

The problem for the fashion industry: A large part of the goods for the coming autumn-winter season is already being sent to the fashion brands by manufacturers in Asia or Europe. However, they cannot currently deliver them to merchants and department stores because their shops are tight. “We are currently trying to cancel deliveries of goods,” emphasizes Holzer. “But around 75 percent of the goods ordered are already in the pipeline.” That is why the industry is desperately trying to sell the current spring-summer collection in order to make room for the new goods.

To take this pressure off the dealers, Benedikt Böhm is taking a completely new path. The head of the trendy sports brand Dynafit promises to continue to offer this year’s summer collection in 2021. “This is a clear sign to the stores that our goods are not getting old,” the manager told the Handelsblatt. The shopkeepers would have no reason to cut prices due to economic hardship. Even more: Böhm has extended the payment terms, so merchants only have to pay their bills in two months.

The Munich label has recently grown rapidly with ski tour fans and cross-country runners. This year Böhm wanted to start with a bike collection – which will be difficult. Because many of the sports shops have not even completely sold the ski equipment; winter was too warm and the end of the season came far too early with the exit restrictions. Accordingly, they lack the means to pay for the new items.

“It’s insane: We were at full throttle, had big plans and were now stopped abruptly,” Böhm says. “Even online retailers feel that people are now holding their money together.” Nevertheless, it is important not to sell Dynafit’s sports equipment and thus not to damage the brand even in difficult times.

An attitude that experts actually suggest to every entrepreneur. Because price strategists always warn against a too aggressive discount. “With discounts, retailers and manufacturers break the price level,” explains Oliver Roll, co-owner of the consultancy Prof. Roll & Pastuch – Management Consultants. Roll has been advising companies on their pricing strategy for more than 20 years. The logic behind his discount warning: the more customers get used to discounts, the less they are willing to pay the original price.

But the tried and tested price rule overrides many providers in the corona crisis. Roll believes that is understandable. “Fashion and sporting goods in particular are perishable goods these days, so I think a strong discount is understandable,” says the expert.

After all, customers would demand such products significantly less than in other years; the dealers risked sitting on the goods. “For some retailers, the discount is the only way to ensure their own liquidity or even their own existence.”

Fashion less popular in times of home office

Tobias Maria Günter, partner of the strategy consultancy Simon-Kucher & Partners, believes that the liquidity argument is currently in the foreground for traders. The demand for many products is low: fashion items would play a significantly smaller role in the current time when many people are sitting in the home office.

His advice to the retailers: Instead of an alarming 20% ​​discount on everything, he recommends giving free goods. “Retailers should reward the customers who are still buying now by giving them additional products free of charge.” The idea behind this is that retailers can empty their overcrowded stores more quickly. And at the same time secure their liquidity – with full customer satisfaction.

Not least to avert a price war, the industry is demanding a liquidity fund of 850 million euros from the federal government. This would allow the merchants to bridge the next few weeks without having to sell the collections. “With the liquidity fund, we also want to avoid a discount battle after the reopening of the stationary shops,” hopes Marc O’Polo boss Holzer.

However, it is questionable whether people still have money to shop carefree throughout the year. According to a current survey by Kantar’s market researchers, just under a fifth of Germans are already feeling the crisis in their own wallets. Over a third expect income to decline in the future.

At the moment, prices are falling in many places. C&A currently grants discounts of up to 49 percent in its online shop. The textile discounter is also increasingly relying on its online business because the group has closed its more than 1,300 branches in 15 European countries until further notice. In addition, Düsseldorfers currently do not charge shipping costs across Europe, so they deliver everything to customers without fees.

In addition, C&A has extended the right of return from 30 to 60 days. “With the abolition of shipping costs, we want to make online shopping as easy and attractive as possible for our customers so that they can buy fashion for everyday needs even in this difficult situation,” explains Andreas Hammer, Director E-Commerce at C&A, the discounted purchase.

More: Online trading is not a sure-fire success even in the corona crisis

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