Attitudes Are Changing

In terms of the deflation vs. inflation debate, I've made it clear where I stand. The bursting of history's biggest credit bubble will lead to forced liquidations and a reduction in demand for all sorts of goods and services that will invariably pressure prices lower.

What can turn these kinds of economic and financial pressures into self-reinforcing spirals, however, is a broad shift in attitudes. That is one reason why, for example, Federal Reserve policymakers traditionally spend a lot of time giving speeches, granting interviews, and writing papers to try and influence expectations about inflation. Once a view about future price trends takes widespread hold, it is hard to reverse.

Given that, it seems clear that American attitudes have been undergoing a sea change. People are more willing to wait or do without (though in some cases, of course, they have little choice). Shopping no longer seems to be the emotional palliative it once was. Savings rates are starting to tick higher, along with an increased aversion to debt-financed consumption.

And as following report, "At Megastores, Hagglers Find No Price Set in Stone," from the New York Times suggests, people are getting more comfortable with the awkward and unfamiliar notion of haggling over prices -- and even walking away altogether.

Shoppers are discovering an upside to the down economy. They are getting price breaks by reviving an age-old retail strategy: haggling.

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.

Savvy consumers, empowered by the Internet and encouraged by a slowing economy, are finding that they can dicker on prices, not just on clearance items or big-ticket products like televisions but also on lower-cost goods like cameras, audio speakers, couches, rugs and even clothing.

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.

The sluggish economy is punctuating a cultural shift enabled by wired consumers accustomed to comparing prices and bargaining online, said Nancy F. Koehn, a retail historian at the Harvard Business School.

Haggling was once common before department stores began setting fixed prices in the 1850s. But the shift to bargaining in malls and on Main Street is a considerable change from even 10 years ago, Ms. Koehn said, when studies showed that consumers did not like to bargain and did not consider themselves good at it. “Call it the eBay phenomenon,” Ms. Koehn said.

“The recession is helping to push these seedlings to the surface,” she added. “It’s a real turnabout on the part of the buyer and the seller.”

John D. Morris, an apparel industry analyst for Wachovia, said that the ailing economy was not necessarily forcing all retailers to negotiate. But he says he believes that when there is an opportunity for negotiation, the shopper has the upper hand.

“This is one of the periods where the customer is empowered,” Mr. Morris said. “The retailer knows that the customer is enduring tough times — and is more willing to be the one who blinks first in that stare-down match.”

While tough times give people more incentive to change their behavior, it is the wealth of information about products made available on the Internet that gives consumers the know-how to try it. People now can quickly amass information on product availability and pricing, helping them develop strategies to get the best deal.

Michael Roskell, 33, a technology project manager from Jersey City, N.J., said he and a friend from high school periodically visit electronics stores. While Mr. Roskell expresses interest in buying an item, his friend acts as though he is dissatisfied with the price and threatens to leave.

“We play good cop, bad cop,” Mr. Roskell said.

In February, he said, the friends got $20 off a pair of $250 speakers at 6th Avenue Electronics in the New York area. Earlier, he and the same friend negotiated to buy two 46-inch high-definition Sony televisions at P. C. Richard & Son, a New York-area electronics chain.

List price: $4,300. Price after negotiation: $3,305.50.

“My parents never did this,” Mr. Roskell said. “But once you get it, you realize there’s a whole economy built on this.”

The strategy can even work when buying pants. At least it did for David Achee of Maplewood, N.J., who said he went to a Polo Ralph Lauren store in the SoHo neighborhood of Manhattan last month and became interested in a pair of pants on the clearance rack for $75. He told the salesperson that he had seen a similar pair on the Internet for $65, adding that he thought the pair on the rack looked worn (even though he did not really think so). He got the pants for around $50, he said.

Among his other tactics, he said, he sometimes threatens to walk out of a store and go to a competitor, as he did recently to get a price break on a drum set at a music store. But, mainly, he relies on researching prices and coming armed with information — prices he finds on the Internet and in ads from competitors.

“You can negotiate, but you have to do your research,” said Mr. Achee, who works for the Port Authority of New York and New Jersey. “When I’m bargaining, I’m bargaining with information.”

Information from the Internet helped Amber Kendall, 24, and her husband, Matt, when they shopped for a camera last October. The couple, who live in Boston, found the Canon camera they wanted online for $350, then used the Internet price to bargain with Ritz Camera, where the price was $400. Then they used the Ritz Camera offer to get the same price at Microcenter, where they preferred the warranty offer.

The technological influences are not just on the consumer side. Retail industry analysts said corporate retailers have begun using computer systems that let them do real-time pricing and profit analysis. Such systems tell a company what price it can set and still make money, and they illuminate the trade-off between lowering prices and raising sales volumes, said Andy Hargreaves, a retail industry analyst with Pacific Crest Securities.

Mr. Hargreaves did a little negotiating himself recently. At Best Buy last November, he bargained down the price of a 50-inch Samsung plasma television.

“They gave me a number. I gave them another number, and he gave me a final number,” he said, noting that he got a $100 price break in addition to the $200 sale discount. “A lot of people don’t realize you can go into Best Buy and ask them for a lower price.”

Frederick Stinchfield, 23, was a Best Buy salesman in Minnetonka, Minn., until last January. He said about one-quarter of customers tried to bargain. Much of the time, he said, he was able to oblige them, particularly in circumstances where a customer buying electronics (like a camera) also bought an accessory (like a camera bag) with a higher markup. He said the cash registers at Best Buy were set up so that prices could be reset at checkout.

Salespeople and managers had the latitude to drop prices, though some were more likely to do so than others.

His advice for bargainer hunters? “If you get denied once, go looking for someone else who looks nice,” said Mr. Stinchfield, who now works for the federal government in Washington. He added: “Come armed with information, and you will be rewarded.”

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.

Rather than retaining customers, the rise in haggling is making shoppers highly price-conscious and loyal ultimately to the least expensive offer, not to a brand or a retailer.

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.”

Comments

[Rick Vaughn]

This was a eye opening post. At one end I'm glad to see people being smarter with their money but it will have its affect on economy. I think in the long run the good companies will remain and that not so strong will fall. Its evolutionary which is good for the market as a whole.

[Boris]

I would imagine that companies like Amazon .com would be hurt by the consumer led recession, but I still see it climbing albeit not to the high high, but still higher, who do you explain this

[Edward Charles Ponzi Jr.]

"In terms of the deflation vs. inflation debate, I've made it clear where I stand. The bursting of history's biggest credit bubble will lead to forced liquidations and a reduction in demand for all sorts of goods and services that will invariably pressure prices lower"

OK -- reasonable enough -- but what about imports and the dollar? Even if we use less "stuff" -- and even if there is a global downturn -- the rest-of-world market for things we need like energy or some foods could easily play out as a situation where the number of dollars for those resources might be very high.

Michael -- what are your thoughts about imports in an environment that is internally deflationary?

I guess you also feel that the FED will run out of bullets and not switch to shotgun shells...

[eddie]

Hi, Financial Armageddon--?? Seems like that is not happening now, at least today.. Gee Wizz- Looks like the economy is very strong.. NAR reports 'great' numbers, big sales, the financials are doing great!! and the market is up 220+++

What is going on? Are we not in a consumer led recssion??? Why would the market rally??? most people I know cant stand paying 3.80 per gallon to fill their tanks???!!!!! YET, the market continues with these silly rallies....