Ever wondered how stores can afford to offer half-off sales?
It seems like a great deal for shoppers, but there has to be a catch. After all, stores have to make a profit somehow.
In a SmartMoney article, "How 50-percent discounts really work," writer Kelli B. Grant explains, "These deep and temporary markdowns are essentially loss-leaders, designed to lure shoppers into buying more items in one visit -- or to generate more visits from shoppers wise to the strategy of rotating discounts."
Grant describes the following three ways stores can offer deep discounts and still turn a profit:
Sales-cycle lows. Retailers use sales-cycle lows to change when and how much categories of products go on sale.
Limited-time special prices. One-day sales are an effective way to put the pressure on shoppers to buy something immediately, since the sales price won't be offered the next day. One you're in the store, it's likely you'll purchase items that aren't on sale, as well.
Shipping fees. Paying full price for shipping on an online order can eat up some of the savings you think you're getting during a half-off sale.
Be a savvier shopper
A good sale can be a good deal, but it's important to shop wisely so your retail "savings" doesn't run up the credit card bill. Use the following tips to take advantage of sales and avoid the pitfalls:
Frequent a particular store often? Learn its sales cycle to time your purchase to get the best deal. Sign up for the mailing list to see when the retailer sends out coupons or offers deals.
Plan your purchases. Keep a list of what you need, and stick to it. Make a pact with yourself to shop by the list and hold off on purchasing full-price items until they've gone on sale. Curbing impulse buys is key to navigating sales without overspending.
If you shop online, hold out for free shipping. Grant writes that shoppers are most likely to see both discounts and free shipping offered starting the Monday after Thanksgiving, which is when consumers begin to shop online for the upcoming holiday season.
Finally, don't forget to save the money you save. For example, if you save $20 on a purchase by shopping a sale, transfer $20 to your savings account right away. It's an easy way to reach your financial goals faster.