As consumers slowly rediscover shopping, retailers are struggling to strike a balance between slashing prices and going full price.
Some high-end stores are settling on lower prices and products that don't have to be discounted to be palatable. That helps maintain their brand images — and profit margins.
Luxury retailers have been working for more than six months to develop merchandise that satisfies that goal, says retail strategist Peter Brown.
The risks of cutting prices too much were obvious after Saks Fifth Avenuesks became the poster child for discounting with 80%-off after-holiday sales. Saks "sullied its tony reputation" by doing so, Forbes says in its recent issue. But Abercrombie & Fitch anf has stood out for the opposite reason: record sales declines while refusing to cut prices.
Abercrombie's no-discounting policy has been a "brave long-term strategy," says Brown, vice chairman of retail consulting firm Kurt Salmon Associates. Retail analyst Christine Chen of Needham & Co. thinks it will pay off: "When the economy improves — and it will — it will be very difficult for those brands that have discounted to convince the customer to pay full price."
Because it doesn't run 2-for-1 deals and other frequent promotions, Abercrombie "blows through the older merchandise in two weeks" when it does seasonal clearances, says Chen.
After announcing another huge sales decline for the quarter, Abercrombie said Tuesday that it is selectively lowering its average prices. That's evident, says Chen, with the $35 sundresses offered at the chain's Hollister stores. Those dresses can compete with sale offerings at American Eagle, she says.
Meanwhile, Saks, which beat expectations but announced its fifth quarterly loss Tuesday, has said it will start offering more lower-price items.
Experts say that might be the best alternative to deep price cutting — and it's already paying off for Coach. coh Offering a less-expensive version of the same purse — or pair of pants — helps the retailer and consumer save face. Consumers don't have to trade down to a lesser brand or store, and stores don't have to hurt profits and reputations.
"The key is to not cheapen the brand," says Brown. "Give people a product with the same quality and deliver it at a lower price point." To those ends, Saks is introducing a private label, lower-cost menswear brand.
But it's obvious consumers still love a good markdown: Sales at TJX, tjx the parent company of T.J. Maxx and Marshalls, were up 4% in the second quarter, and profit skyrocketed 31%, the company said Tuesday.