The world of high fashion is starting to look like a fire sale. As retailers look for a way out of an unprecedented cash flow crunch, many are slashing prices online and offering free shipping. The move is good for consumers, but for the retailers involved discounting is a double-edged sword.
It’s the age-old argument for retail. Discounts move product, but they deflate margins and arguably create an unsustainable perception among consumers. But a sweep of major fashion retailers shows an aggressive discounting trend that reflects the desperation of the times as COVID-19 continues to decimate the economy. Macy’s: 30 percent off with free shipping. Neiman Marcus: 40 percent off all products. Nordstrom: 60 percent off and free shipping. Saks: 10 percent base discount with selected items at 70 percent off. Even brands that are usually immune to discounting have had to play. For example, Thinknum, which tracks eCommerce retail, found that in January, Lululemon had 1,060 items on sale. By the end of the count of items on sale had dropped 34 percent. Now, it’s back up to 39 percent.
“As retailers and brands adapt to how customers use their discretionary spending and aim to decrease inventory, we may continue to see a squeeze on sales and margins in spite of high e-commerce traffic,” said Bloomreach Chief Strategy Officer Brian Walker.
The price strategy is also clearing out product without ready inventory to replace it. According to Edited, the number of new styles posted by U.S. retailers is down 64 percent over 2019. In the U.K., there are 70 percent fewer new arrivals this week compared to last year.
“If margins and profits are already struggling then slashing prices for an entire season’s clothes will be very painful,” said Sophie Lund-Yates, analyst at Hargreaves Lansdown. “This will be a particular dilemma for bigger, department-like stores, where profits have been hammered in recent years by the onerous costs of running their large high street shops.”
The discount moves are justified given the financial stress that many of the companies now discounting have been operating under. A McKinsey and Business of Fashion analysis showed that 34 percent of fashion businesses in North America and Europe were in trouble before the coronavirus crisis.
“We predict that after two to three months of store closures that figure will more than double to over 80 percent. In fact, the financial market — which could face its biggest economic contraction since the second World War — is still faring better overall than apparel players, whose valuations and stock prices have plummeted to dramatic lows, with year-to-date losses of more than 40 percent in mid-March,” says the report.
The discounting is also a caution sign for retailers as they prepare for what many experts believe will be an aggressive shift to online buying after the crisis passes. “We are only a few weeks into the period of social distancing and sheltering in place. While it’s still unclear when and how this will end, you need to be ready to reopen your stores. How will Covid-19 change your customers’ habits for the long run and what are you doing to get ready for this shift? Marketers must display a sincere desire to watch, listen, and learn. One thing we know already is that digital experiences are here to stay,” says a report in HBR. “This is a moment of peril for retail marketers, but one that also contains a kernel of opportunity to come to the other side of these choppy waters with a more loyal customer base and stronger business model. We recommend that you jump in, learn fast, and think long-term even as you focus on survival these next few months.”