Monday, March 23, 2009

Luxe For Less - Managing Margins Down

From Jeanine Poggi in
Fashion Deflation
The recession is prompting clothing makers and retailers to lower prices.

There's some good news for shoppers amid the economic gloom: Lower clothing prices are coming soon, and not just for sale items. Mainstream brands such as Lacoste and Coach plan to cut retail prices as much as 30% on their fall offerings.
The reason: Fashion producers are trying to anticipate consumers' tighter budgets and avoid last year's drastic markdowns, which can undercut a brand's perceived strength. "The 70% discounts we saw during the holiday season are risky not just for brand integrity but brand equity," says Erwan Rambourg, luxury and sporting goods analyst at HSBC.

As a defensive action, clothing makers are tightening belts, making do with lower profit margins and passing along the cuts to consumers in the form of lower retail prices. mid level brands are lowering their margins, which is great for consumers, but what about luxury brands?

It's highly unlikely that you will see these reductions at true luxury players such as Louis Vuitton and Cartier. "These brands offer classics, and if Cartier doesn't sell one of its watches today, they can still sell it six months from now," notes Rambourg.
Roger Kowall, owner of Ohio-based men's boutique Cuffs, says suppliers such as Hermès, Loro Piana and Brioni have maintained their prices for the fall. Burberry and Bally also say prices will remain steady.
"Luxury is all about perceived value," Rambourg observes. "If you lower prices you take away that 'wow' effect, which is what defines luxury."

While luxury may be all about perceived value, I have to differ with Mr. Rambourg on the price reductions on luxury goods.

While price reductions my not be published, I know that you can walk into any Cartier store in the US and get an immediate reduction on a Cartier watch. These stores desperately need to move product and manage their cash flow.

Perhaps a one of a kind piece of jewelry will never be discounted, but a stock item will be discounted 10-20%. I wouldn't be surprised if you can also get a discount on the Cartier "Love Bracelet"...although who would buy one new when you purchase one pre-owned at a discount.

Even with brick and mortar stores lowering margins, internet businesses, will continue to be the best places to shop, because you can shop at your own convenience from your own home, not be pressured by sales staff to make a purchase and avoid ridiculous retail markups.

This is what I'm liking now online. I don't need a branded item for the "wow" effect.

Black Onyx and Diamond Earrings from $395

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