HARD TIMES IN THE ECONOMY

January 3, 2009
Desperate Retailers Try Frantic Discounts and Giveaways
By JACK HEALY

At a dealership on the outskirts of Miami, people who agree to buy one Dodge Ram truck can get a second truck or car — free. In 415 supermarkets across the East, customers who bring in a prescription can walk out with free antibiotics. And one clothing chain, not to be outdone, has started offering three suits for the price of one.

An era of desperation marketing is at hand, with stores and automobile dealerships adopting virtually any tactic that might grab the attention of frightened consumers.

After one of the worst holiday seasons in decades, businesses are doing whatever they can to clear their shelves and make way for spring merchandise. Sales of 50 percent off stopped capturing the attention of customers weeks ago, so stores are layering discounts on top of discounts, and trying to lure shoppers with promises of giveaways, bulk bargains and other gimmicks.

“Retailers are trying everything in the book,” said C. Britt Beemer, chairman of America’s Research Group, a consumer research firm. “You’re seeing things like, ‘Buy one, get two free.’ That’s just unheard of, and the item you’re buying isn’t even full price.”

He added, “When you’re advertising those sorts of price points, you’re just trading trash for cash. There’s no strategy. You’re just trying to get rid of it.”

For stores, offers like free antibiotics, three-for-one sweaters and 90-percent-off Sony PlayStations are usually “loss leaders,” a retailing term for sweet deals meant to drive traffic. The stores hope not only to clear out merchandise that is not moving, but also to draw in customers who will spend money on other items.

With sales of clothing, electronics, luxury goods and more down by double digits in the dismal economy, these loss leaders are more important than ever, analysts said. Stores began discounting long before the holiday season and slashed prices even more as Christmas approached, but the sales alone were not enough to clear away winter inventory.

“Fear is very high right now,” said Dan de Grandpre, editor of the Web site DealNews. “What you’re going to see is retailers do as much as they can to be as creative as possible. You’re going to see more of this aggressive and sometimes panicky discounting from apparel stores and electronics stores.”

At the Samsonite outlet in Castle Rock, Colo., two free pairs of boots come with the purchase of one pair; similarly, at the home furnishings store Domestications, three throw rugs go for the price of one. Toys “R” Us had three-for-one Crayola products, and there were three-for-one cashmere sweaters at Off Fifth, the Saks outlet chain, according to news reports.

“They had so many freebies,” said Carrie Koors, who lives in Cincinnati and writes a blog about bargain-hunting. “It was really a great holiday season to shop and get stuff for next season.”
Of course, selling items at two- or three-for-the-price-of-one is effectively just a fat discount on each item.

But Dan Ariely, a professor of behavioral economics at Duke University, says the word “free” can work psychological magic on reluctant consumers.

“When you offer something for free it’s more exciting,” said Mr. Ariely, the author of “Predictably Irrational.” “We don’t think of it in the same way. We just get tempted, because we think of it as only having pluses and no negatives. Free is like a whole new category.”

And so the deals keep multiplying. The clothing company PacSun is offering a $10 discount coupon that allows customers to buy $9.99 T-shirts and slippers for only the cost of shipping. A Ford dealership in San Mateo, Calif., is offering a free scooter with the purchase of every 2009 Ford F-150. And shoppers at Jos. A. Bank can buy three suits for the price of one, while customers at Stop & Shop and Giant Food supermarkets can get free antibiotics to treat their winter ailments — with a doctor’s prescription, of course.

“We’re going to take a leadership role in the industry, and we’re going to be different,” said Faith Weiner, Stop & Shop’s director of public affairs.

In Davie, Fla., University Dodge dreamed up a “Buy 1 ... Get 2!” deal to attract the attention of potential customers and whittle excess inventory, which had spilled onto the lot next door. So far, the dealership has sold 40 vehicles under the promotion, which promises customers a free Dodge Ram, Dodge Caliber or PT Cruiser if they buy a 2008 Ram.

“Most people think we’re crazy,” said Ali Ahmed, the sales manager. “More than anything, it’s a way to catch the customer’s interest than to just offer a percentage or dollar amount off. They’ve heard that before.”

The dealership has advertised its two-for-one car sale online and in newspapers, Mr. Ahmed said, and customers have been calling and showing up to see whether the sale is a gag. But it is no joke from Mr. Ahmed’s point of view: an estimated 900 auto dealerships out of 20,770 nationwide went out of business in 2008, according to industry estimates, and Mr. Ahmed said he did not want to join the thousands likely to close this year.

“It’s a tough environment,” he said. “Of the dealers around you now, you know some of them aren’t going to be on the map next year. If you can steal a little bit of market share now, you’re not going to be one of those.”