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Sunday, March 23, 2008 12:08 PM

A New Phenomenon: Haggling Over Prices

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A new phenomenon is hitting megastores: Hagglers Find Prices Are Flexible.

A bargaining culture once confined largely to car showrooms and jewelry stores is taking root in major stores like Best Buy, Circuit City and Home Depot, as well as mom-and-pop operations.

The change is not particularly overt, and most store policies on bargaining are informal. Some major retailers, however, are quietly telling their salespeople that negotiating is acceptable. “We want to work with the customer, and if that happens to mean negotiating a price, then we’re willing to look at that,” said Kathryn Gallagher, a spokeswoman for Home Depot.

In the last year, she said, the store has adopted an “entrepreneurial spirit” campaign to give salespeople and managers more latitude on prices in order to retain customers.

Priya Raghubir, a marketing professor at the Haas School of Business at the University of California, Berkeley, said that retailers willing to haggle were making a calculated gamble that acceding to lower prices means establishing customer loyalty. The retail mantra is “customer lifetime value,” meaning any single sale might not be that profitable, but an enduring relationship with a shopper would be.

There is just one problem with the theory, Ms. Raghubir said. It does not prove true over time.

Home Depot, among others, begs to differ. Ms. Gallagher, the company spokeswoman, said that by allowing salespeople and store managers to make some pricing decisions, the company was creating a friendly environment that feels more like a local store than a monolithic corporate superstore. (She declined to say how much leeway individual salespeople or managers have.)

Ms. Raghubir says that retailers are realizing that customers are going to keep pressing them on price, because whatever reticence customers had about bargaining has evaporated.

“In the past, when you tried to get yourself a deal and it was an embarrassing thing — the kind of thing you did if you couldn’t afford to pay,” she said. “Now it’s about being a smart shopper.”
Smart Shopping Means Three Things
  • Buying only what you need
  • Buying only what does not go on revolving credit
  • Buying items on sale
I am not quite ready to put haggling over the price of a pair of jeans on the list. Besides, getting $20 off on a $100 pair of designer jeans is not "smart shopping", not buying designer jeans at all is smart shopping.

Haggling on big ticket items, however, may be worth the hassle. I am willing to give it a try in a few months on a snow blower. Ours just went kaput. But I'm not buying a new one now (we had a major snow storm on Friday) that I cleared mostly by hand. Instead I will wait for Home Depot or Lowes to do a clearance sale in May or June then try my own hand at haggling.

The thing is, most do not really need the big ticket items they are buying, and many cannot afford them regardless of what discount is negotiated.

Nonetheless, the haggling taking place at Home Depot (HD), Lowes (LOW), Best Buy (BBY), and Circuit City(CC), shows you just how overbuilt retail is relative to demand. And even though the recession is just a few months old, this haggling is further proof of no pricing power on much of anything besides food and energy.

CPI As A Lagging Indicator

click on chart for sharper image

CPI chart courtesy of St. Louis Fed

In 7 out of the last 8 recessions, CPI peaked as the recession started or a few months later. Evidence continues to mount that the CPI (a lagging indicator) has peaked or will soon peak. Frugality, haggling, and deep discounts are evidence this time will not be different.

Both consumer attitudes towards spending, and now business attitudes towards shoppers have changed in a major way. Frugality and haggling are in, status symbols are out. Better deals are coming for those who haggle, and still better deals yet for those who wait.

Mike "Mish" Shedlock
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