Selling More to Make Less Is a Bad Combination

I get occasional emails from my credit card processor for my online sales. The latest one had an interesting headline:

Cyber Monday Drives Single-Day Transaction Record

This headline refers to the ‘Pulse Index’, as Chase calls it. It is a measure of a sample of 50 of the largest 250 online retailers. While Chase can only monitor the transactions they process, it is good year-over-year assessment.

From the Lean standpoint, the data behind this headline has mixed implications. First, the good news. Sales are up.

• The number of transactions for the holiday season are up 35%.
• Total sales are up 23%.

Both look good individually, but if taken together, there is a problem. Why are sales rising more slowly than the number of transaction? In fact, the average transaction fell by 8.6%.

Retailers are likely offering bigger price reductions, are selling more low ticket items, or are not getting the benefit of their loss-leader sales that they wanted online. The latter makes sense to some degree. If you get attracted by the great price on one item in a bricks and mortar store, you’ll be likely to impulse buy more stuff, or at least batch up more items to eliminate an extra setup (drive to the store). Online, especially with free shipping offers, there is less incentive to fill up a shopping cart, so there is a greater likelihood of the transaction being for a single item.

For the Lean manufacturer, this report is likely bad news. I take it to imply that while consumers are feeling less pressure to hold onto their money, they have developed a frugal streak. They are spending more defensively now, and are waiting to capitalize on bargains. I’m guessing that people tightened their belts during the worst of the recession/depression, and many of those purchasing habits have changed the way they shop. Now, as the purse strings are loosening, those new styles of buying remain.

Retailers will pass this cost pressure onto their vendors. Either they will only buy the lower margin items that are moving, or they will demand price breaks. In either case, cost, at least in the near future, will be a bigger factor for manufacturers than ever.

And for the frontline employee, it means that the staffing help they are likely anticipating will be delayed or reduced. And if the company does hire more people, they might not be enough to change the workload. If a company adds 5% to their staff, but needs to sell 8.6% more products to make the same amount of money, workload will continue to increase. Selling more to make less is a combination that is hard on employees.

I’d be curious if any of my readers have firsthand experience with this. If your company sells a consumer good, are you seeing a downward pressure on price this holiday season? I’d love to hear your thoughts.