The Dirty Secret of “Discounts” ⇥ online.wsj.com

Suzanne Kapner, of the Wall Street Journal:

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.

If you’ve visited any mall several times in the past year, this won’t come as a surprise to you. Every time I walk past Banana Republic, there’s a sign advertising 30-40% off, and it’s much the same for pretty much any large retailer. Even if you know the game, it feels dishonest.