Forget Charles Dickens and A Tale Of Two Cities, I’m talking about right now. After all, when was the last time the U.S. government was willing to give you as much as $4,500 to help you buy a new car . . . and a car company was willing to match it? Also, when was the last time you remember house prices falling 30%?
The story goes that the word “depression” was chosen by President Hoover as a way of describing the economic crisis of the 1930s, because the previously used word “panic” sounded too alarming. Well, with unemployment approaching double digits, and home foreclosures at the highest rate in memory, most Americans are a little depressed right now. But the flip side of the coin is that companies are scrambling to stay in business, and providing consumers (at least the ones who have some loose change left to spend) some unheard-of deals.
The aforementioned car promotion, with Chrysler proposing to match the government’s $4,500 “cash for clunkers” offering, for a total discount of up to $9,000 on a new car, is just the most recent spectacular example. More subdued efforts, though less visible, collectively represent a huge bending toward the consumer. Retailers are negotiating like never before, with sales and discounts being tossed out so fast that employees are having a tough time keeping them straight.
Deals may look pretty small at the individual level, but it amounts to millions of dollars when multiplied over large chains. For example, McDonald’s (NYSE:MCD) is still running its Free Coffee Monday promotion, giving every customer a free iced or hot mocha drink. The normal cost is around $3 per drink. Multiply that by the over 13,000 McDonald’s restaurants there are in the U.S., and you can see why it amounts to one of the largest sampling promotions in the company’s history.
Airlines are no strangers to fighting for sales, but it’s now gotten to the point that it’s cheaper to fly a thousand miles than it is to get your rental car for the 10 mile drive at your destination. Got $100? Northwest Airlines (NYSE:NWA) will fly you from Jacksonville Florida to their hub in Minneapolis Minnesota . . . round trip. In fact, they’ll fly you there round trip from any of 8 different cities around the country for under $160. Even international flights are beginning to show record low prices.
MGM Mirage (NYSE:MGM), like most major casino companies, is struggling with how to bring back the high rollers, or even medium rollers, to its casinos. Fewer dice are rolling in Las Vegas and Atlantic City, forcing some cash-strapped casinos to actually cut back on comps that attract gamblers. But others see comps as the only way to get people back in and will do almost anything for someone with a loose wallet or purse. Cheap package deals to the two big gambling hubs abound, and analysts expect the action to get even more aggressive as people continue to cut back on travel plans.
All of this may be good for buyers, but it has been tough on companies and their employees. Constant price changes and promotions make it more difficult to predict market demand and inventory requirements. Just ask Kentucky Fried Chicken, which was recently forced to suspend a promotion and hand out rain checks when stores couldn’t meet demand. There simple plan was to offer online coupons for a chicken dinner. How were they to know that Oprah Winfrey would mention the coupon to her 7.4 million television viewers?
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