Companies take £20bn discounting hit
RETAILERS could suffer long term consequences from ‘downturn discounting’, according to new research.
KPMG estimates that UK profits could be hit by £20bn as shoppers become used to lower prices making it harder for companies to return to their pre-recession margins.
A survey of 200 UK business leaders found more than 50% of had reduced prices across the board, while 49% entered into price wars with competitors. Almost two-thirds saw recession-driven discounting as contributing to reduced profits at their firm.
Business leaders estimated that more effective pricing models would have increased the firms’ profit margins by 11%, a figure that equates to in excess of £20 billion across 500 of the UK’s largest firms.
David Muir, KPMG northern performance and technology partner, said: “Not surprisingly, firms reacted very quickly to the financial crisis, discounting prices across the board, impacting both demand and profitability. The legacy has been dramatic and in many industries recession-driven discounting has fundamentally eroded the value of the market.
“Over the half the businesses we surveyed admitted they sacrificed margin for sales. As a result companies find themselves trapped – consumers’ expectations of price are lower and buying behaviours have changed, potentially permanently.
“Firms are only now fully counting the cost of their recession driven price-cutting. During this time discounting happened more in survival mode than in a carefully planned way, alongside radical cost cutting.”
