Luxury: Retailers' Dubious Pricing Pas-de-Deux

After the disastrous Christmas retail period of 2008, many buyers from leading retailers started lobbying fashion brands to trim their wholesale prices. Realistically, the only way for a brand to achieve this result (besides relocating production overseas) is by producing garments made with less expensive fabrics, simpler designs and fewer embellishments. This strategy was supposed to entice consumers to spend again by offering them less expensive options from their favorite luxury labels, a sort of "luxe for less" option. This strategy remains ongoing for a number of beleaguered high-end retailers including Neiman Marcus.

As a consumer, I think it's an extremely risky proposition for any luxury brand to dumb down their product to address the predicament of retailers. In fact, probably one of the worst possible moves a luxury brand can make during a downturn is to lose sight of their identity and start chasing the wrong customer. How long before the dumbed-down luxury product begins to look too much like its mid-market cousin? How long before the luxury brand's core customer is turned off by the brand altogether? After all, it's not as though price-conscious consumers don't already have plenty of selection in the mid-range apparel category.

Interestingly, when the closure of fashion label Phi was announced a few weeks ago to the consternation of many within the industry, the CEO of the company Julia Hansen cited the pressure from retailers as one of the factors that led to the decision to shutter the company:

"[Julia Hansen] said the decision to close was influenced by the many requests from retailers to change designs to make them less expensive. (...) 'There was a lot of pressure to go down a path that we felt would compromise the integrity and value of the brand,' Ms. Hansen said."

Indeed. Rather than go down this path, the brand's owners preferred to shut it down altogether (perhaps to resurrect it another day?). Phi's CEO made a perfectly valid point. A luxury brand cannot roll out mid-market apparel and accessories for long without compromising their brand's image and destroying their brand's value. In short, luxury needs to remain luxurious otherwise it ceases to be luxury.

Rather than trying to pressure brands to dumb-down their designs, as a consumer of luxury goods and services, I would much prefer to see Neiman Marcus and other high-end retailers focus on those things that draw customers to a store and incites them to spend. Providing genuinely attentive and personalized service to all customers not just the V.I.P clients would be a very good start. How else does a retailer convert casual customers into loyal, long-term customers? Incidentally, this area was often neglected by retailers during the boom years. Offering exceptional goods that are worth splurging on and creating an irresistible shopping context would also help. Second-guessing brands on design on the other hand, only succeeds in undermining everyone involved, not least of all the brands themselves.

Sincerely,

The Luxe Chronicles

Comments

[John Agee Paris]

"This is turning into a truly interesting, thought-provoking discussion. I can't tell you how much I love waking up to all your comments."

Well, my dear, it's because you provoke us so wonderfully! It's always lovely to see what you have to say. You are always my first internet "stop" of the morning. Wishing you a great 2010!

[Helene]

Dear Steven:

Your points on pricing of entry-level luxury and the overall price/value ratio are dead on. Could it be that the problem at its core is that luxury as an industry simply became bloated over the course of the last 10-15 years? During the boom years, luxury became ubiquitous and therefore banal. Much of its growth (like real estate prices) as it turns out was fueled by the availability of cheap credit rather than the growth of actual wealth. Perhaps too much luxury isn't good for anyone, client or brand especially when the new customers can't really actually afford it outright but need to finance it though credit? I'm still not convinced that luxury as an industry was ever supposed to be mainstream. I suspect that those products that are meant to be treasured and passed down to future generations are intended to be niche and should stay that way.

I would also point out that brands and their ever-expanding array of products weren't the only ones to benefit from the bubble. The floor space dedicated to luxury brands at many high end retailers expanded dramatically throughout the 1990's. Unfortunately, the quality of their service did not. There were people working on the luxury floors of stores like Saks for instance who clearly had not been trained properly and therefore hadn't the foggiest notion of how to sell luxury. They didn't seem to know much about the brands they were selling or what made the products special and in some instances, a few of them were actually ill-mannered. Moreover, there was little or no follow-up and no attempt to turn a casual customer into a loyal customer. The brands are not to blame for this, the retailer is.

Dear Eilis:

I have a tremendous admiration and respect for designers and the work they do. I also wouldn't want to be in your shoes or those of any designer these days. Your craft has been cheapened by the wave of two-bit celebrities masquerading as designers but also by the growth of diffusion lines, collaborations with high-street retailers etc., etc. I think the entire fashion industry needs to to stop and re-examine itself.

As a consumer, I'm confused by all the offerings. A beautifully made garment used to be something you treasured. It was worth preserving because it flattered you, it kept its shape and could serve multiple functions. I can say this today about the offerings of only a small handful of designers. Alaia, Roland Mouret and a few others come to mind but their numbers are dwindling. Too many designers seem to be on auto-pilot. It all strikes me as deeply cynical.

Perhaps fashion needs to fall out of fashion to cleanse itself and return to a saner place?

This is turning into a truly interesting, thought-provoking discussion. I can't tell you how much I love waking up to all your comments. Thank you all!

Helene

[Eilis Boyle]

As a designer the only alternative I've had to keep working with luxurious fabrics and producing high end clothes is to cut the middle man and start selling direct. Brands/designers have been working on extremely tight margins for years...even in the good days, there has always been pressure from the retailer to keep squeezing wholesale price. In five years I saw mark ups from department stores go from 2.4 to 3...quite absurd and greedy and who was affected by this...?? Customer and producer... we got a bad price for our work and customers got ripped off at the retail end...

Retailers, specially department store need to go back to the drawing board.. as everyone else is...stop being realtors and start creative directing their outlets. They need to stop looking at charts made by men in suits and start asking people what they want. the answer probably will be less is more and value is back in the agenda...

[Steven Dennis]

As a former senior executive at Neiman Marcus currently consulting to retail and luxury companies and investors, I agree with your overall point that luxury retailers need to be very careful not to "dumb down" their assortments. Any brand needs to be very careful about drifting away from the positioning that made them successful and potentially losing their relevance and differentiation.

Having said this, luxury retailers and brands faces a major challenge for the foreseeable future, namely that the market has contracted dramatically and will be slow to recover. Moreover, many brands grew their top lines through raising prices, not attracting new customers. So now it's about getting a bigger piece of a smaller pie. And the reality for the big guys is there are not enough uber-wealthy, fashionistas to do this.

So the challenge is how to how on to the "top of the pyramid" customer while doing a better job attracting the "millionaire next store" types. Not so easy, but doable for companies that I have deep insight about their customer and a very focused customer growth strategy.

Lastly, pricing is an issue, both because the price/value got out of whack and the price of entry got so high that many customers bailed on stores like Saks in favor of Nordstrom. But it is hardly the only issue. The real challenge is the making the overall experience compelling and remarkableand giving your target customers reasons to not only drive most of their spending to your store, but to be a real advocate for your brand.

[nadia]

wonderful post - and a top-of-mind issue that will surely continue to challenge the luxury brands. those that stay true to themselves will win and become stronger in the end. i agree with your thoughts on creating a better, more comfortable in-store experience. an atmosphere that invites rather than discourages the customer from spending time in the store is oftentimes the only interaction a customer gets with the luxury brand [i.e. no sales calls, little advertising outside of magazines].
i included a few more thoughts on the issue - enjoyed your post:
http://laviesucree.wordpress.com/2010/01/06/pas-de-deux/

[Make Do Style]

I think service is key to engaging with any brand.
But I do think the commentator above has a point - Prada nearly come unstuck with their cheap cotton for stitching and the prices of bags and shoes in comparison to the production costs and the leather beggars belief sometimes.

however I do agree that retailers shouldn't rely on pricing as the main way to engage.

[John Agee Paris]

I couldn't agree more with your negative reaction to this trend. One huge problem with the "fashion system" is the retail aspect. As a child growing up in Texas, I remember just how chic Neiman's in Dallas was. My God, the sheer fabulousness of it all. "Neiman-Marcus Fortnight", which happened once a year, would showcase a country, say France for instance, and this theme would flow through everthing that happened in the store: clothing, accessories, the food shop. The catalogue was BEYOND, and it made you dream. Everything seemed special. What you were looking at wasn't intended to reach everybody, that's what made it incredible. And presiding over all of it was Mr. Stanley Marcus himself, quite possibly the most cultivated, elegant retailer in history.

As a designer of luxury handmade jewelry, I have resisted trying to make less expensive pieces in this downturn. The clients who love luxury, WANT luxury. Simple as that. If people wanted Macy's, they'd go there. Neimans should rewind a bit and remember their roots.

[pulchra]

on one side (poor retailers service and lack of attention to the client) I do agree with you, there is so much that can be done to spoil the customer and treat him or her as a king or queen
on the other side I think that very often in the recent past luxury brands offered not so high qualitative products to their clients keeping high prices and thinking that sales were automatic given the relevance of the brand
what we ask as customers is value for money and an excellent service, this is my opinion
and honesty, transparency and respect for the customer
let's not forget that many luxury brands already produce in countries where the cost of labour is cheaper but they have continued to keep the prices high