# Discounts and Financing in the Age of Corona-Chan



## Ivan Shatov (May 19, 2020)

Memorial Day is coming up. In the US, that means heavy discounts and financing offers from large retail outlets.

These deals are indicators of economic health. Usually, the worse the economy, the better the deals.

Told my wife about a month ago to expect to see 24 months, no interest financing from all big box stores. We've been watching to see if that comes true, and it sort of is. You can get 24 month zero interest financing from Best Buy, but it looks like they jacked the prices on all home appliances. There are discounts on certain packages, but the discounted price is very close to the normal price you could find on ABT or Appliances Connection. After a little reading, I found out the discount is actually a manufacturer's rebate that they are cashing in for you. 

So it does not appear retail is discounting inventory. The incentives are coming from producers. When we took the time to look at other retailers - Walmart, Home Depot, etc, we found the story was a little more complex. For the cheap items - like an old school refrigerator - you can find discounts, some of which are great. It reminded me of 4k TVs a couple years ago, where the cost went from about an average of $3200 to $1800 as QLED started to become a thing. It seems like you can get dirt cheap stuff at the bottom end of the scale inexpensively, but the stuff at the high end - for the elites - is holding steady.

Then I looked at cars. Have been holding out for the electric F-150 rumored to be coming out in 2022, but some local dealers are offering 72 month, zero interest financing. This might be the absolute best time to buy a car ever, so I started looking at Challengers. Not seeing many discounts on those or electrics like Chevy Bolts, Nissan Leafs, etc. So the deal is really in not having interest on the loan, it's coming from the finance company.

I know this is a small sample size, but what's going on here? Not seeing retailer incentives for luxury items, all incentives are coming from manufacturers and finance. Am seeing clear-outs of the cheap shit you might buy for your garage. I would have expected retailers to do everything in their power to move product at every level, but it seems like they're rocking steady in the eye of the storm. They are betting low wage workers die off quickly during the oncoming depression and smooth sailing for everyone else.


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## DumbDude42 (May 19, 2020)

retailers probably can't afford to offer discounts on their own because the lockdowns hit them the hardest, with forced store closures and shit
manufacturers are probably giving big discounts now because when the retailers had their forced closures during the lockdown, they weren't moving goods so those manufacturers who kept up production are now sitting on huge inventory, so now they try to get rid of all that inventory by boosting sales with discount offers

thats my take on it, but it's just speculation and i'm an uninformed amateur so better take it with a grain of salt


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## Ivan Shatov (May 20, 2020)

DumbDude42 said:


> retailers probably can't afford to offer discounts on their own because the lockdowns hit them the hardest, with forced store closures and shit
> manufacturers are probably giving big discounts now because when the retailers had their forced closures during the lockdown, they weren't moving goods so those manufacturers who kept up production are now sitting on huge inventory, so now they try to get rid of all that inventory by boosting sales with discount offers
> 
> thats my take on it, but it's just speculation and i'm an uninformed amateur so better take it with a grain of salt


Not much of a grain of salt needed, it sounds like you are on the right track..

Home Depot reported it missed it's earnings mark. https://archive.md/dLJoS

They made about $28.3 billion during this time last year, and now they're retracting their profit guidance. "The company said pretax costs to counter the coronavirus pandemic reached $850 million." These are costs related to expanded benefits to employees including hazard pay, sick days, controlling access to locations to comply with local business laws, and other measures. That's about a 3.3% haircut on revenue and their stores are not considered an essential business everywhere. In some states, they're still not allowed to sell their full inventory.

Wondering how this relates to the sale of high-end consumer products. The Memorial Day discounts I'm seeing right now are not from the retailers - they are from manufacturers and financiers. All the retailers are offering is to cash your rebates in for you or get you a longer set of payments. So retailers are not counting on sales volume to make up the margins, the discount cost is being passed to manufacturers. This is different from previous years, often manufacturer and retailer discounts are combined to give you a good deal.

OTOH, the cheaper inventory - older model refrigerators, things usually priced sub-$2,000, are being priced to move. Retailers want this stuff out of their warehouses and can afford to lose a little bit to make that happen. Some of the deals I've seen on older models are for 50%+ off, which probably eats their margins entirely. And the discount is coming on the retailer end, it's greater than the 5-10% manufacturer rebates I'm seeing on the higher end items.

This could all mean a few things. Retailers (not Walmart) are dealing with higher operating expenses and reduced demand. Whether that's artificial because of shutdown orders or the reality of increased unemployment remains to be seen. But they're not betting on increased volume to make up the margins and some stores may be liquidating the cheap stuff to make way for more expensive items that will become the bulk of their inventory.

What a dim view of what is to come. The cheap refrigerators - those are what go into rental units, beach houses and commercial real estate. The long term loans - that means there's going to be about a year's worth of consumer finance that earns no profit. They're counting on an extended collapse, this is depression planning. They're saying 6 months from now, commercial real estate is going to be a terrible investment and no one is going to be buying cars.


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## reptile baht spaniard rid (May 23, 2020)

They may be betting on pent up demand. Remember that many of the factories making these things also went dormant, so there may not be the glut of them (yet) - or they don’t want to mark down their books yet. 

Or they may just be trying to milk that sweet sweet stimulus money out of idiots first.


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