Cover Story October 15, 2009, 5:00PM EST

The Hard Sell

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Instead of just holding sales, Container Store CEO Kip Tindell moved this summer to permanently cut prices on a tenth of the chain's entire stock by an average of 16%. The lower prices, he hopes, will keep customers buying even when big sales aren't being pushed. But Tindell still anticipates the need for promotions. "Next year we're going to have to wean ourselves," he admits. "I don't know how we're going to do it."

Saks has also made moves that are leading to lower average prices. While the luxury chain's brand is still built on high-end merchandise, it's boosting its mid- and entry-level offerings, resulting in average prices that are down approximately 10%, says Citi's Weinswig. Saks CEO Steve Sadove says designers were initially hesitant to create more lower-priced goods. "The vendor community [in Europe] perceived this as very much an American problem." But now everyone from Gucci to Prada is using different fabrics and embellishments to lower costs. "The world has changed," he says.

Even promotions are different. Retailers are making them more targeted. Neiman Marcus' "Midday Dash" sales, launched this summer, lure customers via e-mails or Facebook alerts about deep discounts on select items. They are only available online for a two- to three-hour window, such as during the NFL Monday Night Football debut, when fashionistas might have extra time on their hands. The promotion follows the launch of popular luxury sites such as Gilt.com, which operate like invite-only online sample sales, selling goods for a 36-hour window at steep discounts. Neiman CFO James E. Skinner won't reveal sales data but says results have been better than expected. The recession, he says, "is forcing us to experiment."

Simplicity and One-Stop Shopping: Having the right array of products is critical in a world where stealing market share is crucial to growth. Neil Stern, a partner at retail consultant McMillan Doolittle, predicts that consumers will limit temptation by shopping under one roof. So chains are moving into new product categories.

Sears added permanent toy departments to 20 of its stores in August for the first time since the mid-1990s. While the chain has set up seasonal toy sections in the past, the permanent area is intended to bring back a recession-proof staple. Meanwhile, this year Best Buy (BBY) tried out new categories such as patio furniture and electric scooters and is testing the sale of used video games in about 40 stores. "We've learned over time that our brand can go into more places than it used to," says Barry Judge, Best Buy's chief marketing officer, who speculates that one day the chain could "eventually end up [selling] electric cars."

While some retailers are broadening their offerings, others are dumping fringe products to help make store operations more efficient. Home Depot (HD) has cut back on styles of paintbrushes, grills, and even outdoor holiday products such as artificial Christmas trees and blow-up snowmen. Walgreen (WAG) and Kroger (KR) have done the same, taking a page from Costco (COST) and Trader Joe's, where more selective product lines have helped the chains thrive.

Going Against the Grain: Risk-taking hasn't been a part of most merchants' strategies over the past year, and it isn't hard to see why. "Retailers live by daily sales, which tends to drive a mindset of living in the present," says Madison Riley, a senior partner at Kurt Salmon. But a few opportunists are pushing forward as others pull back. In an effort to reap higher margins and interact directly with customers, wholesaler VF Corp. (VFC) is opening more of its own outlets. By 2012 the owner of such brands as North Face and Seven for All Mankind plans to get 22% of sales from its own stores, up from 16% last year. Competitors such as Jones Apparel Group (JNY), meanwhile, are closing stores. VF CEO Eric C. Wiseman says he does not expect a big recovery. But if it happens, "we'll be in a position to chase demand."

Furniture emporium Restoration Hardware also is taking risks. Instead of slashing prices, CEO Gary Friedman has hired artisans to take his furniture even more upscale. "If you're going to battle with the same goods you did in the last economy, you're probably going to lose," he says.

Friedman's idea, hatched after the crisis hit, has led him around the world four times in five months seeking unique designs while cramming product development into six months. The collection's debut this fall includes a $2,995 Italian chandelier and a $1,295 coffee table. "Am I nervous? Absolutely," he concedes. But he's willing to make the bet. "It's not what happens to you that matters. It's how you respond to it."

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McGregor is BusinessWeek's management editor.