The greatest challenge independent retailers are struggling with right now, even more so than with depressed traffic counts, is getting full margins for their goods. While the consumer may be demanding discounts, the real issue is not the retail selling price, it's margins.

And the immediate response has to be on the cost side. Retailers can't continue to short themselves on margin. Whether your preferred strategy is to establish lower everyday price points (which is what I would recommend), or to build in margin to cover your discounting, there are two approaches, both of which should be pursued: (1) shift the mix of goods you buy into lower price points, with lower costs, and; (2) insist on lower unit costs from your vendors.

Let's take each in turn. Moderating retail price points by shifting the mix toward goods with lower costs can only do so much. You still have high priced inventory. If you take an everyday price-point strategy, it increases the spread between the higher price points and the average price point, which further pressures the higher price points. On the other hand, if you build in margin on the lower priced goods to cover discounting, you narrow the spread between the higher price points and the average price point, making your full retails look overpriced. Nevertheless, shifting the mix of goods toward more moderate price points needs to be part of your response.

Link: Read the article