The Tricky Math of Black Friday 'Bargains'

Let the buyer beware. JL

Suzanne Kapner reports in the Wall Street Journal :

Since September retailers are selling 21% fewer items at full price, compared with the same period a year ago, according to an analysis of $5 billion consumer transactions. But some of those discounts are more of an illusion than a real bargain.Shoppers also have a tendency to get confused over whether a dollar amount versus a percentage off is the better deal.
Shoppers already are scouring stores for the best holiday deals, but finding true bargains this season has gotten a lot more complicated.
The layers of discounts, flash promotions and store coupons are testing consumers’ math skills—and patience. Nancy Haas, of Lockport, N.Y., says when retailers pile one deal on top of another it drives her batty. “I’ll get to the register and think I’m getting a certain discount, and realize, no, that’s not what it is,” says the 57-year-old substitute teacher, who has taken to carrying a calculator, pencil and paper with her while shopping.
Deep promotions once reserved solely for the holiday season have become commonplace year-round as retailers battle to attract shoppers who are still thrifty six years after the recession. Consumers have become so accustomed to discounts they are reluctant to shop without them. America’s Research Group found that more than three-quarters of shoppers want discounts of 60% off before making a purchase.
This Black Friday, the stakes are even higher. Sluggish retail sales throughout the fall have left excess goods on store shelves and forced retailers to ramp up promotions beyond what they had planned. Since September retailers are selling 21% fewer items at full price, compared with the same period a year ago, according to an analysis of $5 billion consumer transactions by DynamicAction, a retail-analytics firm. But some of those discounts are more of an illusion than a real bargain.
Building complexity into product prices benefits retailers. It helps to cloud the transparency of online pricing, making it harder for shoppers to compare prices across chains.

“The more prices become convoluted, the less retailers will have to match lower prices offered by their rivals,” said Simeon Siegel, an analyst with Nomura Holdings Inc. NMR -2.09 %
And price has become a moving target. Amazon changed prices 666 times on 180 popular products sold from Nov. 1 through Nov. 19, according to Market Track, a price-tracking firm. That is a 51% increase in price volatility compared with similar products sold during the same period a year earlier. Wal-Mart Stores Inc. WMT 0.53 % ’s prices changed 631 times and Best Buy Co. BBY 1.33 % ’s prices changed 263 times on similar products sold during the same period this year.
Market Track expects fluctuations to speed up through the holidays. “We’re not at the pinnacle of this volatility yet,” said Traci Gregorski, the firm’s vice president of marketing. “It will get even crazier.”
Retailers also use a tactic called stackable promotions, where more than one discount can be applied to the same item, such as when a $100 sweater is marked 20% off and then an additional 25% off. People tend to buy more when promotions are layered, because they often mistakenly think they are getting a better deal. They add the two discounts together, rather than taking the second discount off the reduced price, according to Akshay Rao, a marketing professor at the University of Minnesota. For that $100 sweater, the discount is 40% off, not 45%.
Stackable deals during last year’s Black Friday were up about 30% compared with 2013, according to a database of more than 500,000 coupons compiled by website RetailMeNot Inc. SALE 2.68 % Yet, the stackable deals didn’t provide greater savings. Both the layered deals and the flat deals worked out to discounts of roughly 40%.
Shoppers also have a tendency to get confused over whether a dollar amount versus a percentage off is the better deal.
Citi Retail Services, a unit of Citigroup C -0.18 % that provides private-label credit cards to retailers, tested two offers this year with thousands of customers. One gave a fixed $20 off the first purchase made with a credit card. The other gave 30% off. Most customers chose the fixed $20 off, even though the 30% discount provided greater savings because most first purchases exceed $100, according to Leslie McNamara, Citi Retail Services’ managing director.
Some retailers have been accused of pushing the envelope on the way they price products. J.C. Penney Co. JCP -0.36 % and Michael Kors Holdings Ltd. KORS 0.23 % both recently agreed to settle class-action lawsuits that accused them of using higher base prices to inflate their discounts. In January, four members of Congress asked the Federal Trade Commission to investigate potentially deceptive pricing by outlet stores.In the case against Penney, lead plaintiff Cynthia Spann claimed the 40% discount she received on three blouses she bought at $17.99 a piece was misleading because none of them had sold for the regular retail price of $30 in the preceding three months.
According to the Federal Trade Commission, retailers are supposed to offer items at regular prices “for a reasonably substantial period of time” before marking them down. Penney denies the allegations but earlier this month agreed to settle the case for $50 million to eliminate the uncertainties and expense of further litigation.
In September, Michael Kors agreed to pay $4.9 million to settle claims it used fake manufacturer’s suggested retail prices at its outlet stores to make the discounts appear deeper than they actually were. The lawsuit contended that many products were made exclusively for the outlet stores and were never sold at the list price. Michael Kors says its pricing isn't deceptive.
“It’s not appropriate to mislead consumers into thinking they are getting a discount by using a false former price,” said Wayne Kreger, who filed the Michael Kors case on behalf of two lead plaintiffs.
TJX TJX 1.59 % Cos., Amazon.com Inc., AMZN 0.62 % Kohl’s Corp. KSS -0.06 % and Nordstrom Inc. JWN 0.78 % are facing similar legal claims. A Nordstrom spokeswoman said the lawsuit had no merit. She said the company is committed to “pricing integrity” and that items sold at its off-price Nordstrom Rack stores “are not lesser quality versions of original items.” Representatives for Amazon and Kohl’s declined to comment.
A TJX spokeswoman declined to comment on the litigation, but said the company explains its pricing at its stores and on its website this way: “Our ‘compare at’ price is based on our buying staff’s estimate of the regular, retail price at which a comparable item in finer catalogs, specialty or department stores may have been sold.”