2010 Discounting Forecast: Retail and Auto

Retailers manage inventory levels and reduce the number of sales.

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For consumers, 2010 may not look very different from 2009 when it comes to discounts. Companies in the apparel, jewelry, and home furnishing industries are planning to keep their inventories low to cut operating costs, which means fewer large discounts for customers, says Marshal Cohen, chief industry analyst for the NPD Group, a market research company.

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"Consumers right now are still hunkered down, and even though economy is improving, we still have double-digit unemployment and a housing market that is in flux," says Scott Krugman, vice president of industry relations public relations at the National Retail Federation. Jobs and housing are two key indicators that affect the consumer the most right now, and until there is real improvement in those areas, Krugman says he doesn't think retailers can expect large increases in consumer spending.

However, there has been some slight growth in spending, especially during the holiday season of 2009. Retailers saw a 2.9 percent increase in sales in December, according to Thomson Reuters. Sales at department stores increased by 0.7 percent, apparel stores increased by 4.7 percent, and discount stores increased by 5.3 percent in December, according to data from Thomson Reuters.

In the auto industry, car manufacturers are slowly beginning to recover, seeing a 15 percent increase in U.S. auto sales in December 2009. Expect to see an increase in auto manufacturing in the beginning of 2010 and some selective discounting on certain vehicle models, says Jeff Schuster, executive director of automotive forecasting at J.D. Power and Associates, a global marketing information company that makes forecasts about the auto industry.

While retailers may not be discounting as drastically as in the past, Cohen says every business, even luxury retailers, is looking to add some value or discount into the equation in 2010. Here's a breakdown of what type of discounting you will see from the fashion/apparel, jewelry, home furnishing, and auto industries.

Fashion/apparel

The best discounting this year will take place in clothing stores. You will most likely see discounts at levels similar to those in 2009, but there will be no new apparel categories that will be discounted, says Jack Hendler, president of Net Worth Solutions, a fashion and retail mergers and acquisitions firm.

Hendler says he expects to see declines in sales this year similar to those in 2009, which were as great as 20 percent. "Manufacturers have recognized that apparel, just like new cars, has become more a of luxury purchase than of a necessity," he says. "If consumers are purchasing clothing, it will primarily be replacement items."

"Deeper discounts are a function of being overstocked in a category, having either too much inventory at the wrong time or the incorrect inventory," Hendler says. As a result of the financial crisis in 2008, retailers have learned to manage their inventory more efficiently in order to cut back on costs. Offering less merchandise on the floor prevents retailers from having massive discounts at the end of season.

Cohen says retailers will start a "discount detox" process this year, trying to wean consumers off deep discounts by offering fewer of them. "This year will be more about the planned discount rather than the panic discount," Cohen says. The panic discounts of 2008 occurred because of excess inventory going into the holidays, while 2009 featured retailers selling to manage inventory. Cohen predicts retailers in 2010 will focus on planned discounting and promotions as well as nondiscounting on new and innovative products.

Women's clothing will be the most discounted sector of apparel, with sales focused on denim, knits, and blouses, says Hendler. Next comes men's clothing, which will have promotions on shirts and ties. Children's clothing will be the least discounted, as this is the most competitively priced clothing. Also, footwear won't see many discounts this year.

Jewelry

"The luxury area is without a doubt taking a significant beating," Hendler says. In 2009, luxury retailers had up to 30 percent declines in sales and profitability. These poor sales figures mean larger discounts for consumers this year, especially in moderately priced jewelry, such as silver and pearls.