WSJ: On Style: Death to Discounts? The Designers Rebel

...an extremely interesting and important article!

On Style: Death to Discounts? The Designers Rebel
By Christina Binkley
16 April 2009
The Wall Street Journal

Eileen Fisher is a mild-mannered woman -- quick to apologize and even timid. But the famously silver-haired designer is pondering a radical shift in the way her clothes reach consumers.
In department stores these days, Eileen Fisher clothes "get marked down before they even have a chance to sell," she told me recently. Perhaps it no longer makes sense to give Saks, Bloomingdales and other department stores so much control over the brand, she posited. She has asked her staff to consider a new model: renting department-store space in order to control prices and inventory.
Ms. Fisher's comments illustrate the rift that has formed between department stores and many brands after decades of close cooperation. The rift means shoppers will see fewer of those deep, early luxury-brand discounts that they have enjoyed for the past year.
The relationship between the stores and the brands cracked last fall, when Saks Fifth Avenue and its rivals slashed prices around Thanksgiving. Consumers benefited immediately. I bought a $1,200 Piazza Sempione dress, still in season, for less than $300 at Saks in Los Angeles.
In a matter of weeks, high-end retail's carefully tended pricing structure began to collapse. Shoppers demanded discounts at brands' own stores. At elite brands like Loro Piana, a flea-market mentality took hold. In Europe, even French stores, which are bound by strict pricing laws, are holding "floating sales" that include deep discounts. In the U.S., spring sales are arriving early, rather than coming at the end of the season.
Bargain pricing, of course, appeals to many cash-strapped shoppers, who couldn't otherwise afford luxury goods. But the onslaught of sales actually dismays other customers -- particularly loyal luxury devotees, who feel duped for having paid full price. Shortly after Nancy Novogrod paid full price at a department store for a pair of spring Jil Sander slacks, the editor of Travel + Leisure Magazine got an email saying the store's spring sale was under way. "Spring sale?" Ms. Novogrod said when New Yorkers were still shivering in mid-March. "That's not buyer remorse. That's buyer rage."
The price swings confuse customers, leading them to question the real value of their purchases. Was my Piazza dress ever really worth $1,200?
"Even wealthy people don't want to be ripped off," Ms. Fisher told me this week. She concedes apologetically that her company's prices -- a jacket might cost $400 and pants $150 -- rose more than necessary during the economic boom. "We sort of let the prices go up because business was so good," she says.
Airlines and hotels faced similar price competition several years ago, when Web sites began buying bulk seats and rooms and sold them at discount. It was often more expensive to book a Marriott room on Marriott.com than on Hotels.com. Eventually, the companies made their own prices more competitive, even as they gave the new Web sites incentives to cooperate and punished the sites if they undercut prices by limiting access to inventory.
These days, many fashion brands are effecting their own pushback, demanding to be left out of department stores' sales. "All our brands are taking great care to ensure that what happened in November will not happen again," says Paola Milani, a spokeswoman for Gucci Group, which owns Bottega Veneta, Yves Saint Laurent, Gucci and other brands. "The idea is to maintain pricing coherence in the regions in which our products are sold regardless of channel of distribution."
It's not that the brands will totally eschew sales; Yves Saint Laurent yesterday emailed customers an offer good next week at its stores: 50% clothing, 30% off accessories. But the luxury brands want to control when they take discounts and on which products. And the deals will likely be less sweeping.
Saks, which was a leader in last fall's discounting, declined to comment. But this week, notices for Saks's 25% off "Friends and Family" sale exclude, in the teensy fine print, more than 40 top luxury brands, including Gucci, Cartier, Chanel, Loro Piana, Oscar de la Renta, Zegna and Christian Louboutin.
Ms. Fisher says she hadn't been aware of this week's sale and wishes her brand had also been excluded. Known for its ease of wear and timeless styles, the brand uses washable silks and wools that are intended to last for years. Her company depends on department stores for 70% of its revenue, which was $273 million in 2008. But she would like to whittle that share down to 50%.
To that end, Eileen Fisher will open six new stores of its own this year in the U.S. -- slightly accelerated from an average of five new stores per year -- and is launching a costly new technology platform for Internet sales that will offer greater flexibility, allowing online customers to pick up items in stores, for instance.
Ms. Fisher is also working to encourage department stores to use what she calls "scalpel markdowns" -- where items that sell poorly are marked down quickly, leaving strong sellers at full price even as new inventory arrives. "We're negotiating harder with all of them," she says of department stores.
Ms. Fisher's most extreme idea -- renting space in department stores -- won't happen anytime soon, but she and her staff plan to broach it with store accounts tentatively. The project would be complex -- equivalent to opening scores of boutiques across the country.
But the in-store boutiques have some precedents. LVMH's Louis Vuitton brand has been doing it for years. Every LV-logoed wallet and handbag at Saks or Neiman Marcus is sold by a salesperson who is employed by Vuitton, on space that is leased by the French luxury manufacturer.
LVMH's fashion and leather-goods revenues, dominated by Louis Vuitton, rose 10% in the fourth quarter. Little wonder: They didn't go on sale last fall.
---
Subscribers, please join my Journal Community, where you can share questions and ideas, at WSJ.com/Community. Twitterers can follow me at Twitter.com/BinkleyOnStyle.