A Shameful Retail Practice

Generally I am proud to be a part of the retail industry.  It is a common theme of my conversations with people outside of the industry to point out that the competencies and skills required to be a successful retailer are as diverse and challenging as any other profession.  I urge our industry to actively attract the best and brightest from America’s business schools.  To be a successful retail executive is as demanding as leading any multi-billion dollar company in the world.  And a professional career anyone should be proud of.

But there is a practice among America’s retailers that I find shameful.

As any good pricing practitioner will tell you, the way to maximize profit is to raise prices to the level that you can remain competitive within the marketplace yet still retain your customers.  Over the past decade, pricing optimization tools and point of sale technology has advanced to the extent that retailers can tailor pricing zones to take advantage of those markets where prices can be adjusted upward and still be competitive to maximize margin dollars.

This is the free market in action.

So where can prices be raised and still be competitive?  Not in America’s suburbs where big boxes battle it out with regional grocery chains and miles of strip malls attest to a previously optimistic belief that growth would never end.  No, there is too much competition there and prices are usually very competitive to stave off dueling retailers.

Higher prices are tolerated where competition is thin and Americans have no other choices.  Look to the inner cities where grocery stores, Wal-Mart, Target and the rest will not operate.  Look to America’s small towns where the only other options are a gas station or a 30-mile drive to Wal-Mart.  Look at the stores within Indian reservations.  There you will find retailers taking advantage of the lack of competition to raise prices on those least likely to be able to afford it.  I am talking about Detroit, Harlem, East LA, the south side of Chicago, St Louis – all places where our sense of fair play should be outraged to learn that people who already have been dealt a tough hand must pay 50¢ to $1.00 more for laundry detergent, hot dogs, diapers and toilet paper than the soccer mom in the same greater metropolitan area.

I know why retailers do it: theft is high, distribution costs are high and with few other options there is no reason to run Sunday ads with deep price cuts.

It just makes me ashamed of my industry.

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