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Retailers Cut Back on Promotions Due to Rising Costs and Inflation

COMMERCERetailers Cut Back on Promotions Due to Rising Costs and Inflation

In the first three quarters of this year, the number of promotions in retail stores fell by nearly 15% year on year. The biggest decrease was in wholesalers and in electronic appliance stores, by over 33% and almost 26% respectively. And this is not the end of the bad news. According to experts, in December there will indeed be more promotions than in November, but at the same time fewer than last year. This may mean fewer opportunities for savings on shopping. The Polish people therefore must prepare for the fact that there will be the fewest discount campaigns for food and non-alcoholic beverages. On the other hand, the most may be in the areas of home appliances, as well as among beauty and cosmetic products. Promotions for clothes or toys may also be more frequent.

From the beginning of January to the end of September 2023, the number of promotions decreased year on year. In wholesalers by over 33%, in DIY stores – by almost 26%, and in stores selling home appliances – by nearly 22%. According to the analysis of UCE RESEARCH and Hiper-Com Poland, in total during this period there were almost 15% fewer discounts than a year earlier. For the purposes of the report, almost 11,000 promotional newsletters with a total of nearly 205,000 pages and an area of almost 17 million cm2 were analyzed. They were published in the first three quarters of 2023 and 2022. They contained a total of over 1.7 million promotions.

The main factors that led to the decrease in the number of promotions in the first three quarters of 2023 were primarily rising business costs, including labor, energy and transport. Shops were forced to raise prices to cover these costs, which limits the possibility of running promotions. On the other hand, high inflation continues to reduce consumers’ purchasing power, which can discourage them from buying – even if the products are on promotion – says Julita Pryzmont from Hiper-Com Poland.

The authors of the analysis also point out that the decrease in the number of promotions might be caused by an improvement in consumer sentiment. According to Central Statistical Office data, for the first nine months of 2023, retail sales (measured in constant prices) were 3.4% lower than in the corresponding period of 2022. We buy less and more carefully, so networks are not fighting so much for our attention.

In the face of declining retail sales and rising trading costs, some companies have limited promotional activities. The decrease in promotions by almost 15% is likely to go unnoticed by customers, but promotions are still important. Consumers now expect not only low prices but also a quick and hassle-free purchase process, a wide range, including eco-products, and high-quality service – says Dr. Urszula Kłosiewicz-Górecka from the Polish Economic Institute.

As a result, the price is no longer the only criterion for selecting goods for purchase. Consumers will not start buying more just because of promotions, as in times of prevailing high prices they limit unnecessary purchases. Retail chains see this trend and slightly reduce the number of promotions, as confirmed by the current data for the first three quarters of this year. In addition, networks are experiencing various types of problems that also affect the situation – says Maciej Tygielski, a long-time observer and expert in the retail market.

Such information is not a good forecast for current purchases. Research still shows that the vast majority of Poles must continue to save and focus on products sold under promotional offers and discounts. Meanwhile, the current attitude of retail chains may mean that consumers may not find too many of them on store shelves.

Retail chains will ultimately run fewer promotions for consumers in December than last year. Last year’s result was “inflated” by the pandemic and its effects, as well as by rampant inflation. In reality this year I expect about 8-10% more promotions than last year and if this is confirmed, it will be quite a decent result. This year there will be least promotions for broadly understood food and non-alcoholic beverages. On the other hand, there may be the most promotions in the fields of home appliances, and also among beauty and cosmetic products. Promotions for clothes or toys may also be more frequent – adds Maciej Tygielski.

According to the analysis referred to, last year’s Christmas period brought an increase in the number of promotions by over 16% year on year. More than 151,000 promotional campaigns were checked (valid from December 1 to 24 this year and in the same period of last year). The biggest year-on-year increases were recorded by wholesalers, a whopping 94% increase. The next were home appliance networks and pharmacies. These two formats increased by almost 56% and over 34% respectively. The number of promotions also increased by over 5% in discount stores, while by almost 8% in cash & carry stores. On the other hand, convenience store chains saw a decrease by over 17%. DIY stores lost over 16% year on year. In hypermarkets, the number of such offers decreased by over 14%, and in supermarkets – by over 2% year on year. As a result, nearly half of the surveyed formats ran fewer promotions than the year before. This year, the chances of an increase in their number are rather slim.

It looks like we will end 2023 with a declining number of promotions. We estimate that this decrease will be around 10-15%. This is due to rising business costs, high inflation and changes in consumer preferences. However, despite these challenges, stores will continue to try to attract customers through various strategies, such as offering high-quality merchandise, introducing new products or improving customer service – says Julita Pryzmont.

The opinions of the authors of the analysis are not clear-cut and the decrease in the number of promotions, in their opinion, is not yet decided at the end of the year. In November 2023, an improvement in both current and future consumer sentiment was noted compared to the previous month. This could start translating into decisions made in stores. In addition, this is traditionally a period of increased consumer spending in connection with the upcoming New Year’s Eve and New Year, which the trade is likely to take advantage of to maximize sales in December. They also serve this purpose through promotional activities – summarizes Dr. Kłosiewicz-Górecka.

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