Are You Shop-Smart?
How Well Do You Know
These Retailer Tricks?

By Karen Blumenthal
Staff Reporter of The Wall Street Journal

They're after you.

Retailers know that teens today have enormous spending power-an estimated $175 billion in 2003, according to Teenage Research Unlimited, a market research firm.

That translates to average spending of roughly $100 a week per teenager. And most, if not all of that, is disposable income, or money that can be spent on clothes, CDs and entertainment, rather than rent and electric bills.

At the same time, retail consultants say the current generation of teens is the savviest group of young shoppers ever. One reason is that today's young people have been marketed to all their lives by toy makers, cereal makers, movie makers and stores. Another reason: Parents have let their children make buying choices ever since they were very little.

"Today's teens have so much experience shopping at a young age," says Wendy Liebman, of WSL Strategic Retail, a New York retail consultant.

But how savvy are you? How well do you recognize these retail tactics?

Markups and Markdowns. A sweater that is "30% off" might seem like a good deal-and it might even be a good deal-but it's harder to tell these days. It used to be common practice for retailers to sell their goods at double their cost. That is, a shirt purchased wholesale for $10 would be sold in the store for $20.

In the retail industry, that's called a 100% "markup." (The percentage markup is calculated as the retail cost minus the wholesale cost, divided by the wholesale cost.) The difference covers the cost of rent, sales help, utilities and the company's profit. If the item doesn't sell, the retailer begins marking it down.

Today, however, many shoppers will buy something only if it is on sale or marked down. As a result, many stores may set the initial retail price of an item even higher, says Karl Bjornson, a senior manager at retail consultant Kurt Salmon Associates. In other words, that $10 shirt might have an initial price of, say, $30 or $35.

Stores then will begin to mark down the price more quickly than before, Mr. Bjornson says, discounting it by 25%, 30%, then 40% and if necessary, 60%. Even at that steep discount, the shirt will still sell for more than the $10 wholesale price. And by selling a few shirts at each price level, the store still makes a decent profit.

The Loss Leader. Sometimes, stores will offer a product at such a low price that they can't realistically make a profit on it. Electronics retailers and discount stores like Wal-Mart and Target offer these deals all the time-like a Twista CD for $9.98 or the Rolling Stones' Live Licks release for $14.98 They're hopeful that the customer who wants that CD won't be able to resist coming into the store for a great deal. They're also hoping that the customer sticks around and shops for full-price products, which will produce profits for the retailer. It doesn't matter if you buy the CD at all. The "loss leader" succeeds if it leads you into the store.

The "special purchase" is a similar ploy. Instead of a well-known brand, the store will buy and advertise an item that it can sell at a super-low price, like a $40 no-name DVD player. The store probably makes a small profit on the special purchase, but the idea is the same: It wants you to come in and hopes you'll do some extra shopping while you're there.

Target marketing. Remember that box on the SAT or ACT asking if your information can be shared with others? If you checked it, you might hear from more than just colleges. The Container Store, a 33-store chain specializing in home organization, buys lists of students taking college-entrance tests in order to identify prime customers for dorm-room décor.

This year, Container Store sent a special mailer to 520,000 prospective freshmen inviting them to a special evening focused on organizing "the smallest place you'll ever live," says Casey Priest, vice president of marketing. At the invitation-only event, participants got a 20% discount on their purchases.

When you buy something at Container Store, the clerk asks for your phone number. And once that number is in the system, the chain will track your purchases, allowing it to target you with promotions for, say, shelving or the annual "college bound" catalog. The hope, says Ms. Priest, is that after college-bound students discover Container Store, they will become customers for life.

Container Store doesn't share its shopper information with others. But many retailers do, selling lists of names and shopping preferences to other marketers who want some of your business.

The Comfort Zone. Your favorite stores usually play cool music. But it's not because the store managers love those tunes. As you probably suspect, they're playing that music for you. But retailers want to do more than entertain you. They want to make you comfortable in the store. The more comfortable you are, the more likely you are to stay awhile. And the longer you stay, the more likely you are to buy things.

A few years ago, Nordstrom decided to refine its juniors department to make it more attractive to teens. Unlike the rest of the store, the "BP" department (once called "Brass Plum") now has video screens, bright murals on the walls, stained concrete floors and special lighting. BP's fixtures are full of trendy apparel at moderate prices. And while the piano in the middle of the store may be tinkling out some old Neil Diamond tune, the music in BP is far more contemporary.

"The right music, in particular, is a flashing sign that says, 'This is a place for you,'" says Ms. Liebman of WSL Strategic Retail.

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