Full Retail Returns to Luxury Stores
Remember the days of 70 percent discounts? Seems like it was only a
year ago when everybody, including luxury department and specialty stores,
were practically giving product away. Well, according to a Bloomberg report,
those days are gone as the well-heeled, and those who wish to dress like them,
shell out full retail for top designer goods.
Lisa Hagen is one of the consumers in question. She told Bloomberg,
"A lot of the high-end designers are at remarkably high prices. I am willing
to pay higher prices and full prices if I like it, it fits my need and I know
I will use it."
"The get-it-cheap party for luxury consumers has ended," Milton Pedraza,
chief executive officer at the Luxury Institute, told the news service. "When
consumers now turn over the product and look at the price, they see that those
days of incredible discounts on luxury goods are over."
Chains such as Barneys New York, Neiman Marcus, Saks Fifth Avenue and Tiffany
are among those rolling up the discount carpet as business improves. That’s
been good news for chains as higher margins boost the bottom line.
Saks saw its gross margins go from 21.2 percent for the quarter ending Jan.
30 in 2009 to 36.5 percent this year.
"There’s no question that an
increase in full-price selling has a positive effect," said CEO Stephen Sadove.
Discussion
Questions: Has the period of deep discounts at luxury stores come to an end?
Has full retail returned to stores outside of the luxury segment?Â
It has returned–until the next bad economic shoe drops. If that happens, watch those 70% signs get dusted off fast!
It’s an environmental thing. Wealthy customers always recover their old spending habits faster than the rest of the commoners that populate this planet. If you can go full tilt on margin, go for it.
Charging full price is a way of re-asserting who may join the “club” and who may not. That’s what those shoppers are buying–membership into the club of those who float above the hoi polloi.
It’s deja-vu, all over again. This has consistently been the pattern of pricing in the luxury goods retail market (with very few exceptions), in line with the [roller-coaster] economy. That said, the mark-ups that luxury retailers enjoy in good times are more transparent than ever, and consumers may become more discerning–excepting a small group of self-selecting shoppers for whom cost is not an issue.
Although the luxury retailer is getting their retail groove back, I think it’s premature to say that paying full retail is back without the value caveat. The exclusive club is still coveted by many and entry is limited and costly, but the recession has made even the wealthiest require something more of retailers than a high price tag to engage their wallet.
Luxury retailers are getting back to limiting the quantity of items and this will work for some, but I think the consumer, especially at this level, needs to be sold, serviced, and appreciated to part with their money and keep going back for more.
Several fundamental things have changed. America has (for the time at least) become bored with and moved beyond the “OHMIGOD, the sky is falling, the sky is falling” hysteria and settled into what might be termed watchful waiting. It is no longer considered poor taste to dress up, particularly among those who can afford it.
Secondly, the luxury industry has balanced its inventories to this new level and no longer suffers from the excess stock overhangs that prompted the crazy discounts in the first place.
Finally, the “faux” luxury business is essentially gone. The true luxury business has returned to what is was before all the credit-driven craziness of the last 20 years, a relatively small business catering to a relatively small customer base.
While the luxuries may be breathing a sigh of relief, TJX stock is floating near a 52-week high. The luxuries’ customers love a bargain, too.
Sadly, American culture revolves around price, not quality. The activity in the higher end of the apparel retail sector is just a sign that the people with the wherewithal are finally deciding that the world is not going to collapse and that it’s “ok” to return to normal.
As for the rest of the country, the notion of price being the #1 attribute for any and all products may never change. We’re just born with that sense. Maybe too, it’s just the very nature of capitalism–buy low, sell high. Either way, it’ll be a cold day in Panama when the question, “how much?” takes a back seat to anything else in the U.S.
I AGREE with both Mr. Peterson and Mr. Emerson above; the high-end sector is returning to what it was–a service oriented, high-quality, high-price venue for those customers to whom the price does not matter at all…or not much.
And for most, PRICE IS NUMBER ONE–King–and I do not see that changing any time soon for the great majority of shoppers. Especially if you buy into the “downward spiral” of our standard of living.