Retailers Hope Discounting Falls Out of Fashion

Discussion
Aug 14, 2009
George Anderson

By George Anderson

Luxury fashion designers are looking for consumers to go all Barbara Kruger and get with the mantra, “I shop therefore I am.”

Oh yes, they also want consumers living by that motto to be prepared to pay full retail instead of seeking discounts. Enough with conscious consumerism; let’s have some more conspicuous consumption.

To try and get consumers over the notion that spending to the extreme is a bad, dare we say gauche behavior, 700 stores in the U.S. and 11 other countries will be celebrating Fashion’s Night Out by staying open until 11:00 p.m. on the eve of Fashion Week in New York.

Neiman Marcus will be participating with all 41 stores providing entertainment to shoppers. Saks Fifth Avenue is bringing in 40 designers to talk with shoppers in the store.

Part of the deal for participating in the event is that retailers agree not to engage in the price cutting that has become commonplace, even among the most upscale shops.

“We told retailers, this [event] is not about discounting,” Steven Kolb, executive director of the Council of Fashion Designers of America, told The Wall Street Journal.

“Last year, it was ‘Let’s get out of this inventory at any cost,'” Macy’s CEO Terry Lundgren told The Journal. “Here we are nine months later, and we have inventory back in line so there isn’t a need for clearance,” he says.

Unfortunately for high-end retailers, consumers seem increasingly pleased with their ability to put-off purchasing, making it more likely that discounts will be needed to drive sales. Twenty-six percent of consumers in a 2007 Conference Board study strongly agreed, “Luxury is less about the material things one has or one owns and more about how one experiences life, a sense of happiness and satisfaction.”

Discussion Questions: Do you sense that luxury consumers are getting ready to spend more freely than they have during most of the recession? What must high-end designers and retailers do to break the discounting cycle? Is it even possible to get consumers, affluent or otherwise, to pay full retail anymore?

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28 Comments on "Retailers Hope Discounting Falls Out of Fashion"


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Max Goldberg
Guest
11 years 8 months ago

I don’t feel that luxury consumers are ready to freely spend again. In addition, frivolous luxury spending has become d class at a time when unemployment and underemployment are rampant.

Consumers will pay full retail for an item they really need, when there is perceived value in the product and its price. Many luxury items are status symbols and their current perceived value has dropped. Priced have fallen accordingly.

Al McClain
Guest
Al McClain
11 years 8 months ago

If there has been one advantage for luxury retailers to this deep recession, it may be that it has given them an opportunity to rethink their businesses. For years, discounting seemed to be the only tool for many high-end operators that worked, and it was a costly tool. After the initial spate of crazy discounting, prices and product lines have been adjusted, and retailers have done more to make the shopping experience SPECIAL. Bringing in designers to talk with shoppers, having additional special events, catering more to top shoppers, and so on, will all help luxury businesses survive the new reality.

Bob Phibbs
Guest
11 years 8 months ago

It’s indeed a great pr move but who takes this seriously? Seems like the Emperor’s New Clothes updated for 2009. Is the evening before 9/11 a time to whistle past the graveyard at discounting and proclaim it over or just find an excuse to act like it was the go-go 80’s again?

Expect those who do actually show up for the event to indeed look for the bargains and haggle. There’s only one way smart retailers will be ready to get away from discounting – that’s to train and execute accordingly http://www.retaildoc.com/blog/discounting-retail/haggle

Dick Seesel
Guest
11 years 8 months ago

There’s a difference between high-end fashion retailers like Neiman Marcus and upper-moderate stores like Macy’s. Yes, Macys is prepared for the fourth quarter with better inventory management, but it sounds like Terry Lundgren is also ready for a highly promotional holiday season based on his interview comments. Macy’s is competing with the likes of JCPenney and Kohl’s just as much as with stores like Saks Fifth Avenue.

The upper tier of stores is in a quandary, however: They are in the business of selling trend and quality, but they were caught up in the promotional free-for-all when demand fell off a cliff last September. It’s important for them to refocus on “fashion” as a marketing tool, and as their brands’ reason for being. But it’s naive to assume that consumer demand will return to “the good old days” this fall, especially when the luxury segment remains the most hard-hit. Stores like Neiman and Saks need to strike a balance between brand reinforcement and adding value for their best customers.

Phil Rubin
Guest
11 years 8 months ago
It’s hard to completely agree or disagree with the idea that consumers are ready to shop and pay full price again, and for several reasons. 1. It depends on the retailer. Those who are engaging in events and connecting designers with customers will absolutely get more full price business. Some of the retailers mentioned have gone overboard with promotion, even some holding these events. Macy’s for one, has been so promotional for so long that they have little chance of effectively competing at the high end without discounting. So while inventory levels are more rational for the current economy, you can’t turn those big ships that quickly. Merchants easily taught consumers to shop on deal and they don’t forget that quickly. 2. It depends on the customer. While in general enough financial pain has been suffered for consumers en masse to rethink spending, those shoppers who are highly engaged and emotional about what they wear are going to pay up if they see the right goods. In a recent discussion with a client on what… Read more »
Carol Spieckerman
Guest
11 years 8 months ago

I think this is a step in the right direction if for no other reason than it jump starts the positive, full-price momentum that will be required to counteract months of deep discounting. The luxury market has had to deal with a double whammy: economic stress AND for those still doing well, spending guilt. Fashion Night Out creates excitement and synergy that says “Everyone’s doing it.” Contrast that with late last year when any major luxury street was a hodgepodge of discounting and full price. In that environment, full price retailers looked presumptuous and greedy. Solidarity corrects context!

Marge Laney
Guest
11 years 8 months ago

I like the Fashion’s Night Out idea. If the night is about putting fun back into shopping, building some excitement about the fall collections, and giving shoppers a night off from recession woes, then that’s a move in the right direction. But I do wonder about the motive. I believe the authors of the Night Out believe that the luxury shopper just needs to be told that it’s not d class to buy and buy a lot. I think they are counting on a party atmosphere to get the money flowing again. I’m not so sure that’s sustainable just yet. And if they think they can end discounting through proclamation, they’re delusional.

Len Lewis
Guest
Len Lewis
11 years 8 months ago

I always remember that great Woody Allen line: “The greatest sin in my family was to pay retail.”

I think that’s the way it is with all customers and that’s the way it’s going to stay. People love to shop and they will start spending again. The new “new normal” dictates that you seek out the best price you can and anyone who thinks the majority of customers–even upmarket customers–are going to pay full retail is just kidding himself.

The retail industry has spent the last several years–even before the recession–telling people that they don’t have to, that sales and promotions will come along regularly. Guess what? The American public believes you!

Pamela Danziger
Guest
Pamela Danziger
11 years 8 months ago
Unity Marketing’s research into the mindset and psychology of the affluent consumer finds a fundamental change has taken place in what they value and how they spend. These changes are not simply the result of the recession but the recession was the ‘tipping point’ to bring about the shift faster and more aggressively. Affluent consumers are not going to deny themselves luxury indulgences forever, but they are thinking more seriously about whether they ‘need’ vs. just ‘want’ a purchase. They want the value of the item bought to be aligned with the price they pay. The fact that merchants haven’t been able to move luxury branded merchandise is because the list price was way out of whack in terms of its perceived value. The fact that it sold only at 50-70% off list tells the marketer something powerful about what the value of their product is. They need to listen to the marketplace and price their products accordingly. Otherwise the consumers are simply going to wait it out. The essential fact is, none of them… Read more »
Mel Kleiman
Guest
11 years 8 months ago

Great idea and a very small step in the right direction. Most high-end consumers want to be perceived as special and all of us want to have fun and go to parties.

Now, when it comes to changing behavior, this will possibly be one very small step in a very long journey, where the high-end retailers may never reach their destination because the passenger no longer wants to go there with them.

It will be interesting to see who will hold out longer. But I am betting that the training of the last 18 months will stick for a long time and the consumer is going to wait for a sale most of the time before they open their purse.

Bernice Hurst
Guest
11 years 8 months ago

Al used the word reality and I think that’s what this really is all about. I don’t know anyone anymore who isn’t proud of having bagged a bargain. Luxury just doesn’t do it, and may never get back into the mainstream. The fun and challenge of shopping around may never again give way to the fun and challenge of scoring something more expensive than your friends can afford. Americans, of all people, are not likely to give up the hunt for best buy i.e. bottom price.

Bill Emerson
Guest
Bill Emerson
11 years 8 months ago
Great comments all. The missing element is the disproportionate hit that the luxury customer has taken in the financial collapse. Yes, they still have millions (unless you were invested with Madoff), but they have seen their portfolios sink by over 40% and the value of their property(s) cut in half. This is real money. Along with the rest of America, the rich have seen their basic assumption that everything will continue to go up indefinitely shattered. This has been an emotional experience that will take years (yes, years) to get over. Add to this the proposed legislation about raising taxes on the wealthy. Simply having an event to imply, “whew, glad that’s over” is not going to change anything. Frugal is the new cool among this customer. As Pamela notes above, they will not continue to deny themselves luxury for long, but look for a new focus on quality/price ratios by a much smaller group of customers. Not so long ago there was a lot of discussion about what “luxury” really means, along with making… Read more »
Camille P. Schuster, PhD.
Guest
11 years 8 months ago

Understanding why consumers wouldn’t shop until prices were lowered and how they felt about buying products and services at lower prices is critical. Some consumers found a bargain and bought products; some consumers felt that the prices were finally at the “right” price point; some consumers bought only what they could afford. As a result, some consumers found that they don’t need to spend the higher prices; some consumers felt they have been taken advantage of; some consumers will buy at the high prices befitting their status.

If you don’t know your consumers, raising prices now will be disastrous.

David Livingston
Guest
11 years 8 months ago

We live in a new world where paying full retail is no longer a sign of affluence but a sign of ignorance. Maybe these retailers should put out a tip jar.

Robert Heiblim
Guest
Robert Heiblim
11 years 8 months ago

Some of the comments here are spot on. The issue is value. It will be quite some time until consumers lose their senses about value again. That does not mean luxury goods will not sell as there are still plenty of consumers with the means. Rather it is that they will not pay “stupid” prices for goods regardless of value. Better made, better materials, better performance WILL sell as consumers sort out finances and find themselves with means. However, these “luxury” goods will have to return to offering better values. It is fine to have aspirational goods that cost more, but they have to stand the comparison. If only more expensive they will continue to be rejected. This is why we see such deep discounting in the space as the delta was simply price rather than value. Companies that have oriented themselves to value are beginning to see at least some floor under their feet. If they can make it through, then these markets will open again to higher priced higher performing items…real luxury.

Michael Boze
Guest
Michael Boze
11 years 8 months ago

I think the same customer shops across a number of tiers of retail. If the top-tier retailers like Neiman or Saks want to down play discounting they will need to be satisfied with lower sales and a higher cost of doing business and the implementation of absolute control of their inventories. Not likely.

Doug Stephens
Guest
Doug Stephens
11 years 8 months ago
I was sent a really interesting piece of research yesterday from a very credible market research company. It suggested a few things that I think are extremely relevant here: 1. In every economic crisis on record, the media has projected that consumers would adopt entirely new behaviors, live below their means and turn their back on luxury or aspirational purchases. They have always been wrong…always. In fact, some of the greatest growth in North America’s history was fueled by consumers that lived through the Great Depression. 2. While people are certainly living within their means, they are not and will not live below their means. In other words, they will continue to aspire to luxury purchases albeit more responsibly than before. 3. We are entering a period of increased personal and social responsibility. This includes more responsible spending, lending and borrowing practices. This doesn’t mean living like a Monk. It means living in a manner you can afford to live in. None of this means that luxury is dead. Consumers will still aspire to certain… Read more »
Ralph Jacobson
Guest
11 years 8 months ago

Well, it is nice to think about getting away from discounting. However, today’s shopper demands value, regardless of income level. An interesting article on why luxury retailers should focus on customer experience is in E-Commerce Times today.

It is also quickly getting somewhat out of fashion to display “bling” these days. The super-rich are dressing down, as to not be so insensitive to the common folk. It’s a whole new world out there, across the globe. Take a look what’s happening outside the US.

Ted Hurlbut
Guest
Ted Hurlbut
11 years 8 months ago
It’s pretty clear from the retail comp store sales reports that came out last week that discretionary spending remains anemic, and discretionary categories and items remain under enormous price point and margin pressure, in all tiers. What’s also clear is that the consumer just about refuses to pay full price for just about anything. It’s not only that they’re feeling pinched, it’s that they also don’t see a reason to pay full price when they know the price will inevitably be slashed before too long. No, the consumer is saying to retailers, we’re not going to pay your price, because we know we don’t have to. It’s not just a matter of lower prices, it’s the insistence that they believe they’re getting a deal. Retailers are hoping with leaner inventories, shallower depth and economic recovery that they can create a sense of urgency among their customers to buy now, and not risk waiting for a better price. But retailers have absolutely no pricing power right now, especially in discretionary goods. They can maintain unit sales… Read more »
Roger Saunders
Guest
11 years 8 months ago

This is a wonderful promotional event–for 2005, but not for 2009. The consumer is clearly saying that they are not ready to spend more freely, be it the overall general population, or those who fall into the affluent category. Some statistics that pop up from the July BIGresearch “Consumer Intentions & Actions” (CIA) survey point out that affluent consumers (let’s call it households of $100,000+ income) are very consistent with the overall population in several beliefs.

A predictive, forward look of likely comparable store sales for publicly traded retailers in our “Forecast IQ” Application point to moderate to double digit sales growth for retailers like ROSS STORES, FAMILY DOLLAR, TJX, AERPOSTALE, BUCKLE. The Consumer is not pointing that way for high-end retailers.

Consumers are likely to spend more conservatively in the next 90 to 180 days. They are NOT going to pay full price.

Brian Anderson
Guest
11 years 8 months ago

It’s been said recently that we will never return to the normal, normal shopping patterns again. More than half of affluent consumers say they feel “guilty” making luxury purchases in this economy. People with such discretionary incomes make up 10% of households yet account for more than half of retail sales and 70% of profit margins. We all need to recalibrate our mind set. Value will be the new vogue for many.

Christopher P. Ramey
Guest
11 years 8 months ago
The event as discussed is brilliant. It creates the illusion that products are still being discounted. According to WSJ, Saks margins for the 13 weeks ending 1/31/09 were 20.79%, yet the 13 weeks ending 5/2/09 earned them a margin of 38.37%. This quarter (the most recent reported) is actually higher than the quarter ending 8/2/08 (before the financial implosion) when the margins were 34.94%. As an aside, the quarter ending 11/1/08 earned them a 35.01% margin. Macy’s, on the other hand and anecdotally, seems to always have substantial sales. However, upon closer review, their margins for the last five quarters are; ending 8/2/08 – 41.4%, 11/1/08 – 39.48%, 1/31/09 – 39.35%, 5/2/09 – 38.08% and 8/1/09 – 41.49%. Clearly, if Macy’s ever had substantial sales then it didn’t affect their margins. More likely their sales were/are an illusion. To be fair, it’s not inconceivable Macy’s forced their suppliers to take the markdowns. It may also be misleading to suggest that the event’s raison d’ etre is to stop discounting. Consumers like (perhaps it would be… Read more »
Ed Dennis
Guest
Ed Dennis
11 years 8 months ago

There are millions of consumers who would love to go back to their old habits. Rich, poor, doesn’t make any difference – they won’t right now. Americans are scared stiff, there is little confidence that the economy will recover and if it does at what level. We have convinced ourselves that we don’t need a manufacturing base and that a service economy is OK. But when there is no one to serve, that idea goes right out the window.

Mark Johnson
Guest
Mark Johnson
11 years 8 months ago

Remember Marketing 101: you cannot change your marketing message/image from negative to positive in one step. You have to move from negative to neutral, neutral to positive. Lessons learned can be applied here.

Mike Atkin
Guest
Mike Atkin
11 years 8 months ago
From a UK perspective, there appears to be a significant change in the Retail Fashion Market. Similar to the grocery retail sector, consumers are seeking bargains and the trend is for the low-price retailers (e.g. Primark, George at Asda, H&M) to enjoy growth in revenues, the middle-market retailers (e.g. Next, M&S ) suffering a decline in sales whilst the high-end market is performing well with the likes of Hackett, Hugo Boss and Harrods showing significant results. Over the past decade one of the most enduring trends on the UK high street has been price deflation. Fast and inexpensive fashion has become a fact of life for consumers used to being able to grab the latest looks at throwaway prices. The rise of value fashion has seen some of the biggest success stories of recent years with the likes of Primark, New Look and the supermarkets establishing cut-price clothing offers. Retailers have been working with ever tighter margins to keep pace with the intense competition on price. But the global financial crisis has skewed a lot… Read more »
Aman Nanda
Guest
Aman Nanda
11 years 8 months ago

Some great comments here. The thing about economic conditions in general is that they are cyclical in nature. So, in spite of the new wave of spending restraint etc., if there is decent recovery, we will soon be witness again to purchase of newer islands, fancier cars and more exotic and expensive fashion trends.
However, the important thing to note is the timing of such a shift. I feel we are still too close to all the gloom and doom of earlier this year for even high-end consumers to start spending freely. But it is clear that confidence seems to be returning. So this time can be used by retailers to train their current and potential consumers to not just shop for bargains. It is a priceless opportunity for smart brand managers to redefine value as exclusivity and style leadership for fashion brands rather than a 30% price discount.

Scott Knaul
Guest
Scott Knaul
11 years 8 months ago

It’s all about value. If a customer perceives they are getting a great value then they will spend their money even if it is at full retail prices. Value can mean a lower price but it can also mean a better experience or better quality. If these programs are delivering value to the customer then they will translate into sales. If the programs come off as gimmicky then the customer will look for the best price.