Is the Price Right at Retail?
As the first anniversary of the worst holiday retail season in more than a generation approaches, few analysts expect that retailers will produce the sometimes jaw-dropping discounts of the 2008 Christmas season. But many are asking how much can retailers discount this season and how much will it hurt?
For National Retail Federation spokesperson Ellen Davis, the worst is over. During an Oct. 6 conference call, she said retailers learned from the bruising 2008 holiday and kept their inventory lean. In a prior interview, she forecast apparel retailers would take their prices down a bit to attract shoppers during a competitive holiday. But it won’t be a repeat of the frantic sales of the previous year.
Nate Herman, another analyst, also does not forecast that apparel retailers will discount as much as other consumer businesses, such as electronics retailers that are forecast to offer double-digit discounts for the 2009 holiday retail season. However, he said he believes many fashion retailers will meet a moment of reckoning this season.
“Is it important to hold onto inventory or to maintain prices? That will be the judgment call in early December,” said Herman, the senior director of international trade for the American Apparel and Footwear Association, based in Arlington, Va.
Already pressed by an increasingly frugal buying public and seeking to preserve their sometimes shrinking margins, some boutique owners have been planning to delay that moment of reckoning by fine-tuning partnerships with their vendors and polishing pricing strategies that they’ve been working on to help them recover from the last holiday retail season.
Fred Levine is hoping to avoid storewide sales at his M.Fredric stores in favor of weekly promotions of an individual item, such as a jacket or dress.
“It gives the customer a reason to come in and buy without causing a substantial impact on our bottom line,” said Levine, who runs his stores from his Agoura Hills, Calif., headquarters.
Don Zuidema can offer discounts for his customers by making partnerships and deals with his vendors. Many manufacturers have lowered their wholesale costs, which allowed Zuidema to lower prices at LASC, the West Hollywood, Calif.–based boutique he co-owns.
The partnerships stopped him from taking a route that he said could make money in the short term but hurt his boutique in the long run. Too many discounts and too many cheap brands, Zuidema said, and the customer will expect a store filled with cheap merchandise at LASC and scoff at paying for full price fashions that drive profits.
However, many retailers cannot count on partnerships, said John Anderson, co-owner of men’s fashion line Tank Farm, which is based in Cypress, Calif. Those stores most apt to get discounts are those boutiques making large orders for his line. He can make money because of the volume of the order. However, smaller shops infrequently making orders have not been getting discounts. Anderson said his brand will lose money in those deals.
“We all want to stick around and keep the lights on until the economy picks up,” Anderson said. However, he said he has been trying to give breaks to boutique owners with whom his company has had a good relationship.
Boutiques should not slash prices, said Jeannie Lee, owner of Los Angeles’ Satine boutique. Many consumers still go to her store to buy a $4,000 Jason Wu dress, she said. “If it is something that they will cherish, they will spend money,” said Lee, who has not changed price points at her shop. Satine’s price points range from $58 for T-shirts to $4,000 for Jason Wu dresses. “We always had things that are inexpensive,” she said. And there always has been a high value in the luxury items.”
Despite hard economic times, the wide range of price points helped support her boutique’s move to a new space at 8134 W. Third St. in Los Angeles. It is triple the size of Satine’s former space.
Mercedes Gonzalez, a retail consultant and director of the Global Purchasing Companies, based in New York, advises boutiques to cast a wide net for consumers. “All stores must practice good, better, best pricing,” she said. There must be a low entry point to attract people to the store and more fashionable and expensive items to help make a profit.
And for many boutiques, an in-house private-label line can be an important margin builder, Gonzalez said. “When they can’t find what the consumer wants, they should go and make it,” she said.
