March 7, 2009 -- Trey Shores, 36, recently scored a fantastic deal. The Tokyo-based consultant scooped up an in-season Helmut Lang leather jacket in the city's Ginza district for 50% off the regular price. What was an out-of-reach $2,000 became a more reasonable $1,000 "just like that," says Shores. "I'm quite proud of [it]."
He's certainly not the only consumer benefiting from the financial hardship of retailers. From clothing to travel to cars, companies are being forced to reduce prices at a never-before-seen clip as the global economy continues to shrink.
In the U.S., consumer spending in the fourth quarter of 2008--which accounts for more than two-thirds of domestic economic activity--decreased by 4.3%, according to the Commerce Department. That's the worst decline since the second quarter of 1980. And while retail store sales were up 1% in January 2009 to $344.6 billion when compared with December 2008, and overall consumer spending was up 0.6% during the same period, the government has attributed those increases to massive markdowns on inventory. For many retailers, bargaining with consumers is the only option. In other words, it's a buyer's market.
More Deals, Fewer Restrictions
Kathryn Finney, editor of the the Budget Fashionista, a Web site that caters to fashion-savvy shoppers on a budget, says that right now shoppers are likely to find more deals with fewer restrictions. For example, coupons from department stores typically excluded products from the beauty counter, such as perfume or makeup. Not anymore.
Finney recently used a Saks friends and family coupon to buy her favorite Giorgio Armani Hydro Glow foundation at 15% off $57, which knocked the price down to $48.45 (before tax). "I buy most of my makeup at Target, but I splurge on this foundation because of the quality," says Finney. "This is the first time I've ever purchased it at a discount."
And while shoppers are the true winners in this discount war, some retailers are benefiting as well. Take discounted designer goods Web site Bluefly.com. The site is currently featuring several coveted Hermès handbags at up to 40%. You won't find the brand's popular Kelly or Birkin bags, but you will find a gray herringbone twill "Jumping" tote, discounted by 20% to $1,480. Recently, a black pebble leather Bolide was been marked down by 49% from $8,400 to $4,300 (the piece sold out soon thereafter).
Melissa Payner, CEO of Bluefly, says that exclusive deals like this have kept customers spending. Although Bluefly won't release 2008 full-year and fourth-quarter results until March 11, the company did see significant growth in last year's third quarter. Sales increased by 10% to $19.8 million, and gross profit increased 28% to $7.3 million when comparing both with the third quarter of 2007.
"As we've become more well known, more and more designers have become interested in working with us," says Payner. An elevated brand list combined with an overall consumer desire to get more value for their money has aided Bluefly's success. "We've seen growth in our customer file, e-mail subscribers and the word 'Bluefly' as a Google search term."
Beyond Beauty and Fashion
It's not just fashion and beauty companies that are offering deals on their most coveted products. Luxury car companies, for instance, are offering unheard-of incentives.
In January 2009, Mercedes-Benz offered customers a $6,000 discount on the 2009 CLK, while Cadillac knocked $8,000 off of its extravagant SUV, the 2009 Escalade. This month, Italian automaker Lamborghini is offering to subsidize the financing on its $1.5 million Reventon so potential buyers can avoid tight-credit banks.
"We're definitely seeing automotive luxury players being a lot more generous with their incentives," says Jessica Caldwell, an industry analyst at Santa Monica, Calif.-based auto data research firm Edmunds.com.
The incentives are also evident at the lower end of the luxury tier. Through the end of March, Volvo is offering $1,553 cash back on any 2009 model. This is in addition to the Swedish carmaker's current loyalty incentive, in which customers can trade in an old Volvo, no matter how ancient, in exchange for guaranteed cash back on certain models. These deals also include free factory-scheduled maintenance and Volvo roadside assistance.
The leftover cash from Volvo might have once afforded you dinner for four at a swanky Manhattan eatery like Del Posto, where guests enjoy meals epic in quality and length. Today, six or eight could dine for the same price; some high-end restaurants are shaving the financial fat off of their decadent tasting menus. Del Posto in particular has reduced its nine-course tasting-menu price to $125 from $175 and decreased its 20-course menu from $250 to $175.
And for the family who would choose Mickey Mouse over Mario Batali, Walt Disney World is offering some unprecedented offers. While an all-access pass to the theme park in Orlando, Fla., typically costs $75, this year both adults and children get free admission if they visit on their birthday (proof of age is required). And cruise lovers will be happy to know that kids can travel on most three-night Disney Wonder cruises for free though May 28, 2009.
Good as these deals are for lucky consumers with a bit of discretionary income, these short-term survival tactics could spell trouble for retailers' long-term outlook.
"People are questioning previous prices," says Finney. "They're questioning [traditional] retailers altogether."
In other words, shoppers like Trey Shores might never want to pay full-price for a high-ticket item again.