When two different coalitions of industry players announced their proposals to overhaul the fashion calendar last week, both groups addressed the industry’s discounting problem. The coalitions called for less frequent and extreme markdowns; since the aftermath of the economic crisis of 2008, discounting periods have crept up from end to mid-season, making markdowns the norm rather than the exception and nibbling at brands’ margins and perceived value.
Despite the dangers of markdowns, many retailers, in direct competition and working with razor-thin margins, are currently promoting sales. At the time of publishing, luxury retailers like Moda Operandi, Ssense, Farfetch, Saks Fifth Avenue and mid-market department stores Nordstrom and Macy’s were offering discounts of up to 60 per cent.
Discounts can work in the short term, luring those customers who have discretionary income left and are keen on getting a bargain, but issues will inevitably arise when brands and retailers return products to full price, says Gabriella Santaniello, founder of retail research firm A Line Partners. “There is going to be a point where you have to preserve your margins and get the product back to regular prices, but what are customers going to do then?”
Traditionally, luxury brands have relied on specialised outlets to get rid of excess stock, allowing them to sell collections generally at least a year after their release. Mario Ortelli, managing partner at Ortelli&Co, says brands could send some Spring/Summer items directly to outlets this year, after evaluating what they can bring back next season or use in their resort drop. Bobby Stephens, leader in Deloitte Digital’s retail and consumer products practice, sees luxury brands moving stock to regions that are performing better, like China and South Korea. In a call with analysts in April, Kering CFO Jean-Marc Duplaix said that the company was reallocating inventory across regions, shipping from European stores to Asia for example, and postponing deliveries on the Spring/Summer collection to prolong the full-price selling period. “We are not yet in a situation where we are prepared to buy back products, however, it’s a global negotiation,” Duplaix said.
Independent brands, which don’t have the option of reallocating stock in different regions given their smaller footprint and costs, are coming up with alternative methods, including limited drops and online sample sales, to avoid traditional discounting patterns.
London-based Rejina Pyo has run limited, 24-hour sales drops tied to specific products using promotional codes on Instagram, usually redeemable only by the first 10 followers to use them. New York-based Mara Hoffman held a week-long flash sale early into lockdown in March before returning all products to full prices.
Hoffman and other designer brands including Alexander Wang, Ganni, Proenza Schouler and Kara turned to archive sales, marking down stock from past seasons without undermining the value of the current collections. As most physical outlets are still closed and offline sample sales are out of the question, many brands resorted to sample sale platforms, like Curate Sales and The Box, that have moved online or opened a dedicated section on their website. “We always wanted a separation of church and state before, but we are not interested in that right now. We are letting people get a range of price points,” says Amy Smilovic, founder of Tibi, of adding a permanent sale section on the site.
Tibi has started producing selected items according to non-committal pre-orders taken via Instagram.
In China businesses and local governments gave away vouchers as lockdowns eased in March to encourage consumption across sectors, including retail. Vouchers usually give an additional amount to the consumer to spend on the brand or in store once they have already spent a specific amount. They are beneficial in the short term, as they have less of an impact on brand’s margins, but are still dependent on consumers having discretionary spending. “As long as people are living with job and economic insecurity, that is going to prevent spending,” says Doug Stephens, founder of agency Retail Prophet.
As a brand, one way to limit the damage of markdowns is to communicate clearly with the customer about why you are discounting. “Make it as clear as possible to consumers that this is a limited time discount, not in order to drive a bunch of demand, but just to set the expectations that this is an unprecedented time and we can help each other out together,” says Deloitte’s Stephens. Womenswear brand Reformation used this strategy to advertise a week-long 30 per cent sale on Instagram last week, accompanying the announcement with the message: “Something for you guys to enjoy, but we also really need to do this if we’re being honest.”
Fixing problems at the source
Conscious of the inability to solve inventory and discounting issues in the short term, brands are rethinking production for the longer term. Tibi’s Smilovic has started producing selected items according to non-committal pre-orders she takes via the brand’s Instagram page, an initiative that has been welcomed both by customers and her manufacturers in Europe. She envisions future collections narrowed down from four to two per year, accompanied by smaller, community-tested drops — as a result, the brand will be producing “far fewer clothing”. Canadian denim brand Duer has been testing a similar strategy, offering customers a choice of models and going ahead with production only when they see commitment to purchase.
Ganni held its first online archive sale, donating 20 per cent of profits to the UN Women Covid-19 relief fund.
Tied to the two designer coalitions’ call to overhaul discounting is a push to fix the fashion calendar to make collections more meaningful, whether by reducing their number throughout the year, reducing the number of samples or holding them in a more timely manner to allow deliveries to tie in with seasons. These changes will also require a rejig of the supply chain, which, as in changes towards sustainability, can be easier and faster to implement for smaller independent brands that have more nimble operations and fewer stakeholders. The same is true for vertically integrated larger brands, which own their manufacturers, or those who make most sales through owned channels. “Brands that sell 85 per cent of their collections retail and 15 per cent wholesale have the ability to make their own calendar,” says Ortelli.
Upcycling goods is another more sustainable way to deal with all the inventory in the fashion system; excess has pushed Ganni to figure out how to use unsold stock and fabrics.
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