The Christmas Doughnut

Every year retailers panic. Every year, deep discounts are used as increasingly blunt instruments in the prime retail season. And, after analysing the data every year, the discounts can be shown to do nothing more than give away margin.

For more than ten years now the retail industry has been acutely aware of - and discussed ad nauseam - the "doughnut effect". That is, where sales occur early or late in the lead up to December 25th each Christmas. The doughnut effect continues to widen and deepen. And it is simply a matter of economics. Christmas trading every year is basically an increase of between 2% and 6% of the previous year depending on the retail cycle. Increasingly consumers buy earlier (before the end of the first week in December and sometimes as early as July for toys for example) to ensure they have the items that they want and to cope with the demands of the season; and late - from the end of the third week of December - in the last minute crush to tick off their gift giving lists.

The later Christmas Day is in the week, the bigger the sales dollars in the last week are.

But the demand - as expressed in total dollars spent - is finite. So we end up with week two and three in December as a hole where sales dip dramatically (every year) and retailers panic. Not only that, store staff levels and inventory shelf fill are managed as a constant during a period when there are extreme high and lows.

No matter what retailers do, they are not going to change consumer behaviour nor increase the dollars. There are two major lessons to be learned in Christmas retail.

Firstly, vary your staffing and product supply levels to meet the peaks up to the end of the first week of December and in the last week to ten days before Christmas. The more easily purchased product and efficient sales staff you have in the store when the customers are actually there, the more chance you have of making more than your natural share of sales. It is actually consumer purchase efficiency that wins at Christmas - not discount.

Enhancing this with clear ticketing and signage, gift suggestion tables and pre-wrapped gifts will further affect your gain.

And the second is don't panic and discount. Differentiate your merchandise and be prepared for a drop in sales build-up in the second two weeks of December because it is unavoidable. Don't hand back margin for no volume benefit because - while it may make you feel like you are taking a positive action to do something at the time - it will create a profit decrease not an increase.

In peak trading season when things are moving fast it is easy to panic.

Christmas demands preparation and a cool head to build sustainable profit increases. Pure sales are irrelevant. Profit is the only thing that counts. And if you manage the Christmas cycle and deal with the volume you will make more profit than your competitors. And that makes a season to be jolly!