Came across this article about the current retail climate a few days at my favorite daily reads, the NY Times haha. I’ve pasted the article below as sometimes you need to login but do yourself a favor and get a free NY Times account anyways. Seemingly there’s light at the end of the tunnel… for some. As it stands, the high-fashion retail sector seems to have temporarily found their way to combat the pain and hurt inflicted by their previous retail tactic of slashing the shit out of their prices for their luxury products. This obviously has serious ramifications on a branding and perception side. You’re reinforcing the notion, “why pay full price” when I can get that for 70% off 3 months after it has hit the retail floor? In addition, the once “exclusive club” for luxury goods has all of a sudden opened its doors wide open.
For the meantime, high-end stores have been taking on lower stock and orders and they’ve seemed to be able to effectively modify the simple Economics 101 supply/demand model in their favor. By shifting the supply curve, they’re selling more at full-price at the cost of having not being able to satisfy demand but that does seem to be the lesser of two evils. Much better than selling stuff off super cheap. The wealthy have gotten their Hypebeast on and been coerced into buying at full price on the thought that this shit is limited!!! I don’t doubt it, it has worked for the most part for so long. I’ve never really stood behind the cashier aside from some short stints back in the day at Foosh, I’m really unsure how this model can work on more mass/affordable goods level. The margins are much higher on luxury goods so obviously for everybody below, you need to sell that many more t-shirts and sneakers to equal that one handbag, bespoke shoes or Italian-made suit. So what I’m interested to know, for retailers at different segments of the market, we’ve seen massive mark-downs become the norm in the retail environment over the last little while… what seems to be the best way to overcome this? The luxury retailers seemed to have found a Band-Aid solution which I think should work as eventually the luxury consumer will return close to their original habits… but what about the rest of us?
And… as I was re-reading this it also dawned on me… who else is getting screwed over? Designers of course, if orders (at the high-end level) are smaller, does that put a damper on creative output? Hmmmm?
By STEPHANIE ROSENBLOOM
Published: November 18, 2009
All around Saks Fifth Avenue, merchandise is sold out. The $2,520 Marni shearling vest? Gone. The $5,295 Brioni leather bomber jacket? Only one left. The $1,995 over-the-knee Christian Louboutin boots?
“All gone, except for this,” said Nick Passerelli, a Saks employee, dangling a size 11 boot from his fingers.
After a brutal year in which the nation’s luxury retailers were forced to offer their wares at stunning discounts, they are trying to get their magic back. And they may have found a way: deliberately running low on merchandise.
Saks, the chic Manhattan department store, is a prime example. Its inventory is down by double digits compared with last year. That is partly a response to lower demand, of course, but it is also a business strategy aimed at weaning consumers from deep discounts. By carrying fewer goods and selling them at full price, Saks is essentially telling customers: buy it now or live without it.
“Upscale stores want to train the customer that luxury equals exclusivity and that they cannot assume they can wait and they’re able to buy it on sale,” said William S. Taubman, chief operating officer of Taubman Centers, a mall developer and owner.
This less-is-more strategy is risky, of course. If retailers sell out of goods too soon, they will lose profits they need. But they think it is even riskier to stock up too much.
This time last year, purveyors of high-end goods were drowning in merchandise. Consumers had stopped spending in the economic downturn, forcing stores to cut prices sharply to unload designer goods. At 50 or 70 percent off, once-expensive stilettos and suits flew off the shelves.
But the discounts prompted some consumers to wonder what those items were really worth in the first place. And to the distress of retailers, shoppers began to feel entitled to those eye-popping discounts — not just at big-box stores like Wal-Mart and value-price department stores like Kohl’s, but at Saks and Neiman Marcus, too.
Now, as the economy stabilizes, luxury retailers are taking measures to stamp out discount fever.
They have significantly cut their inventories and are trying, with some early success, to sell their wares at full price. Both Saks and Neiman Marcus have gently told customers that there are fewer goods to go around this year.
Burton M. Tansky, president and chief executive of the Neiman Marcus Group, says he does not think he is retraining consumers. Rather, he said, he is doing what is best for the health of his company.
“We’ve told our customers that the availability is less than they’re used to seeing in the stores,” Mr. Tansky said. “We’ve suggested that it would be prudent to shop early.”
If a particular item sells out at Neiman Marcus, the ability to restock the shelves will depend on the merchandise category. In general, though, lead times for manufacturing luxury goods are long.
“As you go up the ladder to European designers, it’s virtually impossible,” Mr. Tansky said. “But in contemporary apparel, women’s shoes, it’s possible.”
Saks, too, has told customers its inventories are lean.
“We’re out of stock on a number of hot items people want,” Stephen I. Sadove, chairman and chief executive, said this month as he walked through the sprawling shoe department at Saks in Manhattan. “Our associates are telling people, ‘If you want this item in your size, we only have three of them, we only have two.’ ”
That strategy might be working. “I’ve been running out of sizes because I’m selling out,” said Lera Alexkseyeva, a Saks employee who sells clothing by Brunello Cucinelli. Saks bought 21 gray cashmere and fox fur jackets designed by Mr. Cucinelli in the medieval village of Solomeo, Italy. All but one jacket have sold — at $2,695 each.
A big question this Christmas will be how successful retailers are with the strategy. Some surveys have found that, so far, the prospect of lean inventories is not prompting consumers to hasten their holiday shopping. Shoppers could wait out the retailers until late in the season, in the hope that they will panic and put high-grade merchandise on sale.
“Bargains seemingly may matter more than selection for the consumer,” Michael P. Niemira, the director of research and chief economist for the International Council of Shopping Centers, said in a news release this month.
Regardless of when consumers choose to shop, retailers are glad to have a better handle on customer demand.
Speaking about the luxury market, Peter E. Nordstrom, executive vice president and president of merchandising for Nordstrom, said, “The business might not be exactly where we want it, but it is relatively stable.”
Nordstrom has always had a wider range of prices than Saks and Neiman Marcus, and so has less need to hit the reset button with shoppers. The chain weathered the downturn better than its competitors. And while it has less inventory than last year, Mr. Nordstrom said when it came to Christmas, “we think we’re going to have enough.”
Saks came in for sharp criticism from designers last year for the magnitude of its discounting. Mr. Sadove is being aggressive this year about managing inventory, and acknowledged the possibility of not having enough merchandise even for customers willing to pay full price.
“I think we in the industry may go too far and cut back too much,” he said. “You’re going to lose some sales. And that’s O.K. versus having too much and having to sell it at these very high markdowns.”
In fact, chains said they were selling more merchandise at full price today than they were a year ago. And while the stores will not reveal exact numbers, they say a reason their earnings are improving is that they are selling a higher proportion of goods at full price. This month, Saks posted a profit for the first time in months, and Nordstrom said its profit rose as well. Neiman Marcus will report its earnings in December.
While there will be sales this season, as there are every year, most analysts are predicting they will be less drastic than last year.
That is good news for high-end chains that suffered after years of giddy double-digit growth fueled by easy credit. While those days are gone, for now at least, some industry veterans say luxury retailing will thrive again by returning to its roots.
“What’s luxury retailing about?” Mr. Sadove said. “It is about a scarcity of supply.”
