Retail Theater Of Black Friday Discounts: Retailers Profit At Markdown Price

From The Wall Street Journal, "The Dirty Secret of Black Friday 'Discounts': How Retailers Concoct 'Bargains' for the Holidays and Beyond" by Suzanne Kapner:

When shoppers head out in search of Black Friday bargains this week, they won't just be going to the mall, they'll be witnessing retail theater.

Stores will be pulling out the stops on deep discounts aimed at drawing customers into stores. But retail-industry veterans acknowledge that, in many cases, those bargains will be a carefully engineered illusion.

The common assumption is that retailers stock up on goods and then mark down the ones that don't sell, taking a hit to their profits. But that isn't typically how it plays out. Instead, big retailers work backward with their suppliers to set starting prices that, after all the markdowns, will yield the profit margins they want.

A similar strategy is used at many discount outlet stores where the manufacturers produce goods at a lower cost for sale in discount outlets. At a lower cost, the goods can sell for a lower price at the outlet. Both the manufacturers and the retail discount outlet stores make a profit at the lower price.