Wanamaker’s Department Stores is generally credited with being the first retailer to price its products ending in 99 cents rather than rounding it up to the next dollar. Legend or reality, we do know the practice has become the foundation of most retailers’ pricing strategies. Even though shoppers have gotten smarter and know it’s a scam, it remains widely practiced throughout the retailing world.
If you know anything about the American shopper, you know it’s going to impact purchasing behavior. They love a bargain, a deal, a steal and they all have one thing in common: they end in 99 cents.
A Penny for His Thought
That could all change if the new president gets his wish and orders the end of minting the penny coin. Suddenly retailers will no longer be able to offer traditional pricing as there would be no way to provide change to shoppers. Is anyone thinking this through?
Common Cents
Forget the impact on inflation: Prices are always rounded up. Let’s face it, nobody is going to round them down. This could be catastrophic for retailers. In fact, it would be even worse for Walmart which has been pricing things ending in 97¢ since the days of Mr. Sam who always tried to outdo his competitors in virtually everything.
The president ordered the penny finale because he says the government loses money on each one it mints. It costs about three to four cents to make one penny, so the math is admittedly not great. Of course, most experts will say the president doesn’t have the authority to just stop minting currency, that it will take an act of Congress. So, far that seems to be no deterrent.
Kind of lost in all of this is without pennies in circulation nickels would suddenly take on a greater role. But guess what? The government loses even more money minting nickels than it does on pennies. Nickels cost about 13 to 14 cents to make, so the losses would be even higher if nickels replaced pennies. Hey, what’s a Treasury Department to do?
Loose Change
But back to retailers. All those price tags would now be rounded to fives and tens. But what about the sales tax? Chances are good we’re back into penny territory. And think about sales psychology. Retail is based on the assumption that consumers are less apt to buy something if it costs $10 rather than $9.99. Same with $100 versus $99.99. And then how about all those Walmart always low $7.97 price tags now listed at eight bucks?
If you know anything about the American shopper, you know it’s going to impact purchasing behavior. They love a bargain, a deal, a steal and they all have one thing in common: they end in 99 cent. So, eliminating the penny is going to cause cash sales to go down for most retailers. OK, Birken Bags are going to be just fine, but just about everything else paid in cash will be subject to a rounding tax.
And there are so many other considerations. What about penny loafers? Do they become nickel loafers? How about all those penny-stamping machines you see at tourist locations where they stamp a souvenir image on your flattened coin? What happens to penny candy? Will we have to rename the Penny character in Pokémon? Or Penny in the Big Bang Theory? Or going way back to TVLand reruns, Sky King’s niece Penny? What happens to penny stocks? No more pennies from heaven. And what about the adage, “penny-wise and pound-foolish.” Nickel-wise
Keep the Change
We would think retailers would unite and the National Retail Federation and other retail lobbying groups to get on this thing pretty quickly. It’s not a matter of national security and it doesn’t involve renaming bodies of water and mountain peaks. And yes, Canada successfully migrated to being penniless in 2013. But no pennies hit Americans’ pocketbooks and piggybanks. Low-income and unbanked consumers will be the most affected; paying in cash for many Americans is a necessity. For the fintech community, it’s a dream and a boost for the acceleration of a cashless society. But for now, count your pennies.
About The Robin Report
The Robin Report provides insights and opinion on major topics in the retail apparel and related consumer product industries. It delivers provocative, unbiased analysis on retail, brands and consumer products, and covers industry-wide issues, trends and consumer behavior throughout the retail-related industries. TRR is delivered exclusively on TheRobinReport.com. Additionally, TRR produces executive briefings and industry events.
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