You know all those seemingly great sales during the holidays? It turns out, they are often a “carefully engineered illusion.” A recent piece in the Wall Street Journal defines what it calls “retail theater,” noting that often the discounts being offered to bargain-conscious consumers are carefully planned out by retailers from the start:
The common assumption is that retailers stock up on goods and then mark down the ones that don’t sell, taking a hit to their profits. But that isn’t typically how it plays out. Instead, big retailers work backward with their suppliers to set starting prices that, after all the markdowns, will yield the profit margins they want.
The red cardigan sweater with the ruffled neck on sale for more than 40 percent off at $39.99 was never meant to sell at its $68 starting price. It was designed with the discount built in.
Some retailers that sell online even set their discounts depending on user information, as the Journal reported last year.