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Luxury Brands Yield to Discounts Despite Push to Stay Exclusive

Holiday Markdowns Deepen Despite Brands' Push for Higher Prices

(Bloomberg) -- Apparel and handbag makers’ efforts to wean customers from discounts are off to a rocky start this holiday season.

Take Michael Kors’s Jet Set Leather shoulder bag, selling at a 57 percent discount on the company’s website Monday for $149, or a black silk Prada blouse priced 40 percent lower at $809 at Barneys New York. Those items aren’t outliers, according to researcher Edited, which said luxury labels and retailers saw the industry’s highest volume of markdowns over the Black Friday weekend, followed by premium brands.

The lower prices couldn’t come at a more inopportune time for fashion houses like Michael Kors and Ralph Lauren Corp., which are trying to restore their cachet by clamping down on discounting. Both companies posted better-than-expected earnings last quarter and an increase in profit margins -- signs that those efforts are working.

Though heavy promotions and specials are a hallmark of the holiday season, the data from Edited suggests that the labels still have a way to go before getting customers to shell out top dollar. Prices on more than a quarter of luxury items in stock were cut between 26 percent and 50 percent, according to the firm, which tracks real-time data for brands and retailers. The discount volume was 24 percent for premium brands and 20 percent for mass-market goods sold online.

“There are too many luxury and premium brands selling very similar products,” said Milton Pedraza, a New York-based luxury consultant. “Some of them reduced their prices without announcing it because it’s embarrassing and devalues their brand.”

Luxury Brands Yield to Discounts Despite Push to Stay Exclusive

Michael Kors’s website, while touting deals of as much as 50 percent off, offered some handbags and shoes that were marked down even more. Its Aileen leather boot cost $109 on the site, down 63 percent from $295.

For the online apparel market as a whole, Edited found that almost half of all items were discounted an average of 46 percent so far during the holiday season. The price cuts began weeks before Thanksgiving, and led product sellouts to double from this time last year, according to the research firm, which analyzed data from more than 11,000 clothing, footwear and accessory brands.

“While the retail industry has banked on aggressive discounts weeks before Black Friday and Cyber Monday to boost consumer spending, they need to make sure that this does not sacrifice margins in the long-term,” said Katie Smith, Edited’s director of retail analysis and Insights.

Almost a quarter of luxury handbags for sale online have been marked down between 40 percent and 50 percent so far, up from as much as 40 percent last year, Edited said. It named Fendi, Balenciaga, Tom Ford and Prada as some of top discounted brands.

While some high-end boutiques, like Chanel and Louis Vuitton, didn’t hold Black Friday sales events, they did stay open longer to take advantage of traffic. Others, such as Italian leather goods company Fendi, have offered 30 percent off on some products. One model of the company’s double micro baguette bag, originally priced at $1,800, was marked down to $1,260 on Monday at its Manhattan store on tony Madison Avenue. A salesman at the boutique said a lot more items have been discounted this year compared to only about five last year.

At Barneys New York, a blue cashmere coat with mink trim was selling for $2,889, a 40 percent discount off the original $4,820 price.

“I have seen so much discounted so early,” said Terie Bray, 45, who was shopping at Barneys on Monday, her second visit in two days to the upscale Madison Avenue store. Bray bought designer boots and a pair of Maison Margiela pants yesterday, both at 40 percent off. “If they are giving a 40 percent discount now, how much are they going to give for Christmas -- 60 percent, 70 percent?”

While more people are shopping online each year, internet sales still represent less than 12 percent of total holiday retail purchases, according to EMarketer estimates. That means there is still plenty of opportunity for physical stores, including the struggling department-store industry.

Researcher ShopperTrak found that consumer visits to brick-and-mortar retailers on the day after Thanksgiving -- considered one of the busiest shopping days of the year -- slipped less than a percent from last year.

Brick-and-Mortar

“There has been a significant amount of debate surrounding the shifting importance of brick-and-mortar retail, and the fact that shopper visits remained intact on Black Friday illustrates that physical retail is still highly relevant,” said Brian Field, senior director of advisory services for ShopperTrak.

More retailers opted to close on Thanksgiving Day this year, Field said. Based on years of traffic data, shopping on the holiday was only pulling visits from Black Friday, rather than creating an additional buying opportunity, he said, and that closing on Thanksgiving contributes to lower overhead and increased goodwill.

The National Retail Federation estimates U.S. holiday spending will increase as much as 4 percent this year. The industry’s biggest trade ground will provide its survey of Black Friday weekend shopping on Tuesday .

--With assistance from Lindsey Rupp and Kim Bhasin

To contact the reporters on this story: Lisa Wolfson in Boston at lwolfson@bloomberg.net, Stephanie Wong in New York at swong139@bloomberg.net.

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Jonathan Roeder, Lisa Wolfson

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