December 8, 2008

BIRMINGHAM, Ala. - The deep discounts offered by retailers and welcomed by holiday shoppers in recent weeks are not sustainable and could have longer term negative effects for consumers as the country's recession deepens, according to Lauren Skinner, Ph.D., assistant professor of Marketing at the University of Alabama at Birmingham (UAB).

"The discounts are very good right now for shoppers, but in their effort to move merchandise, retailers are drastically reducing or completely cutting their price markups, or profit margins, at the time of year when many retailers traditionally earn a third of their overall annual profit," Skinner said. "If retailers want to move their merchandise in this economic climate they have to cut prices, but they are sacrificing profits and maybe even going into the red to do it."

Retailers heading into the red as a result of steep sales-motivated discounts could have long-term effects for consumers. A lack of profits could mean a lack of options for consumers in the future Skinner said.

"If the retailers aren't taking in a profit, there is no money to buy new merchandise to sell," Skinner said. "So consumers that have come to expect a certain selection from a certain store may see that go away, because retailers don't have the cash on hand to keep stores full stocked."

Skinner said a lack of profit due to discounted selling could also affect retailer services, which takes away from the overall value or shopping experience for consumers.

"A retailer that is taking heavy losses because it is only selling discounted items has to make up those loses in other areas and most times that means a cut in expenses," Skinner said. "It could be a reduction in staff on the sales floor, which could leave consumers with unanswered product questions, or there is an example of an electronics retailer that has its own installation department having to shutdown that department, end the service and let the staff go to cut costs."