Monday, June 4, 2007

Discounting A Sign Of Slowing Sales

Sunday morning I picked up my newspaper and one thing instantly stood out. The coupon sections where excellent. The P&G (PG) stand alone coupons were for amounts I have not seen before. There were coupons there for $3 off Pampers, $4 off a razor, salad dressing coupons that were usually 50 cents off are up to $1 to $2 off now.

This matters because these discounts are for everyday items, not "father's day" special sales event items. When you are a consumer products company like P&G or Church and Dwight (CHD) and have slowing sales, if you want to generate more of them, you have two options, advertise them more, or discount. When the discounts are this large, and the sections contain so many products, it tell me that sales are really slowing and they feel the need to slash prices to drive sales. Last summer, when things were humming along too fast and the Fed was raising rates to slow us down, not only were these discounts not as large, they were non existent. There were several weeks in which there were no coupon sections in the paper and if one did show up, it was minescule and only a new products were featured. Currently almost everything we shop for weekly has a substantial coupon for it in the paper. I have not seen discointing on such a wide aray of items in a long time.

Now, this may be a regional effect, but when you live in the heavily populated northeast like I do, that effect on producers bottom line is substantial. It is also important to note that these are not items that are being discounted on perishable items at a supermarket like Whole Foods (WFMI) where discounting is usually due to a shelf life determination. These are items that can sit on shelves, and apparently they are, for too long.

It will interesting to see what happens when this quarters results are released for these companies. If I had too bet, I would anticipate either falling profits, or if the deep discounting works and it drives sales, margin shrinkage.

Either way, the only people who come out ahead here are you and me.

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