Luxury Retailers Reluctantly Slash Prices Amid Demand Plunge
Luxury Companies Reluctantly Slash Prices Amid Demand Plunge
(Bloomberg) -- Stuck-at-home Americans are nowadays way more interested in buying toilet paper and hand soap than handbags and evening gowns. That’s forcing luxury retailers, like Neiman Marcus Group Inc. and Nordstrom Inc., to resort to a tactic they rarely use: discounts.
Neiman Marcus has Tom Ford glasses, which usually sell for about $400, at 50% off on its website. Customers can snag a Derek Lam stripe shirtdress from Saks Fifth Avenue for $237 -- 40% off the usual price. Nordstrom is offering a Salvatore Ferragamo slide sandal for $225, down from $375.
Normally this time of year, luxury customers would be looking to freshen their closets for spring, and retailers would be selling their merchandise at full price. But the virus has upended this, rattling consumer confidence and driving customers indoors. Nonessential brick-and-mortar stores are closed.
In the meantime, spring assortments sit idle, causing inventories to rise with products that may very well be out of season once customers start shopping again. For now, retailers’ only tool to combat this is offering discounts -- a move that’s distasteful in the luxury industry.
‘Highly Uncharacteristic’
For a company like Nordstrom, deals like those are “highly uncharacteristic,” according to Ed Yruma, an equity research analyst at Keybanc Capital Markets. However, the unusually low prices could end up giving consumers the extra nudge they need to make a purchase.
This March, more than 60% of retailers were offering discounts on a wider selection of products versus the same month in 2019, according to digital-coupon provider RetailMeNot. Among these companies, which included non-luxury chains as well, 40% were giving deeper discounts as well.
The promotions can drive incremental sales, but won’t be anywhere near the level of ordinary operations, Yruma said. Retailers are seeing this pattern play out: Nearly two-thirds of executives surveyed by CommerceNext said online sales haven’t made up for the loss of their stores to mandatory closures.
While the outbreak has hurt almost all corners of the retail sector, aside from grocery stores and pharmacies, it’s “particularly bad for luxury,” according to a report from Bain & Co. This year, the personal luxury goods market could contract 15% to 35% worldwide, Bain & Co. estimates.
“Like many in our industry, we are working to tailor our marketing strategy in a way that makes sense for the current climate while continuing to support our business,” Saks Fifth Avenue said in an emailed statement. The company said it’s experiencing “increased email open rates and higher engagement on social media, both of which indicate that our customers still desire fashion-related content during this time.”
‘Commute-Free Life’
With a majority of Americans under stay-at-home orders, traditional brick-and-mortar stores are promoting comfy items like loungewear and yoga pants at the top of their websites.
Nordstrom’s homepage shows new business casual attire, which they describe as “laid-back looks for the commute-free life.” Neiman bills its loungewear collection -- which is discounted, of course -- as clothes for the “comfiest days at home.” Those items are also discounted. Lululemon describes its yoga pants as “perfect to practice in the living room, the bedroom, and even on the patio.”
Of course, it’s not just luxury brands that are turning to discounts -- chains across the spectrum are facing similar challenges. But luxury retailers try to avoid cutting costs by any means, since it’s a sign of waning cachet for items that are supposed to be highly sought after.
But the allure of luxury is a tough message to sell to shoppers that may or may not be spending extended periods of time in their pajamas.
That might change, however, as people fall into a regular routine at home. This week, consumers who searched for and secured digital deals at clothing stores increased 17%, compared to last week, RetailMeNot found.
“The consumer starts to get used to the current environment and the decision process will start to change,” Yruma said.
©2020 Bloomberg L.P.