« Only a third | Main | Immobility?» Russell Roberts
July 21, 2005
Everyday Low Prices
Russell Roberts
For years there has been a battle between stores that regularly put a subset of items on sale and stores that don't. When I lived in St. Louis, the big battle between department stores was between Dillard's and Famous-Barr. Famous-Barr had sales every two weeks. You would see their multi-colored circulars in the newspaper offering "specials." At Dillard's, there were basically no sales. Their average prices were lower while the prices at Famous-Barr would be lower on those items that were on sale. Famous-Barr made money on people buying the non-sale items. Or at least that's how I remember it.
I once got to hear Mr. Dillard, the CEO of Dillard's explain why his strategy was better. The basic point was that Famous-Barr would be thronging with customers when their sales were on and relatively deserted when prices were high. But the sales staff couldn't be adjusted to meet those customer flows—it was too expensive to be constantly altering the size of the staff. So basically Famous-Barr always had either too many employees or too few. Mr. Dillard felt that his strategy was best in the long-run because he could provide better customer service.
Everyday low prices is part of the reason Wal-Mart has crushed lots of chains that were "sales-driven" having booms and busts in sales and having to cope with the customer service challenge that Mr. Dillard discussed.
Now comes news that low prices are dominating sales in the grocery business. The WSJ (sr) reports:
Bowing to busy consumers who are less willing to spend time searching for deals, some traditional grocery stores are cutting back on promotional discounts and moving toward the everyday low prices of Wal-Mart Stores Inc. and other discounters.
In recent months, several regional grocery chains have reduced prices on everything from Kraft macaroni & cheese to Ragu pasta sauce in an effort to lure back shoppers who have defected to discount grocers. In most cases, the stores also stopped offering weekly bargains on items like cereal or yogurt.
For decades, most traditional supermarkets have lured price-conscious shoppers with cheap weekly specials and made up the lost profit by keeping nonsale prices substantially higher. Now, the prevalence of shops such as Costco Wholesale Corp., dollar stores and discounters such as Wal-Mart has conditioned consumers to expect inexpensive goods every day.
Posted by Russell Roberts in Prices | Permalink
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