Some labels are only interested if you can pay top dollar
The holiday sales season may be a shopaholic’s favorite time of the year, some upscale brands just don’t want their customers to catch a break. And their upscale clientele, they argue, prefer it that way.
Even as the year draws to a close, most retailers don’t have much time to catch their breath. Some are employing tactics to convert clients seeking refunds into repeat customers, while others like Michael Kors Holding Ltd.KORS, +0.14% are in the midst of pulling back on discounted merchandise in order to protect the value of its brand.
A select group of brands however, has decided to play the concession game differently. They vary across price points and include luxury fashion houses like Louis Vuitton LVMUY, +1.25% Tiffany and Co. TIF, +0.25% Hermès and Chanel, as well as millennial darlings like automaker Tesla Motors Inc.TSLA, -1.22% Everlane, a San Francisco-based clothing startup and Kent Wang, an online menswear label. The strategies they employ include never going on sale, restricting discounts to a tiny group of loyal clients, or subtly encouraging customers to pay full-price even when promotions are on.
What they all share is a group of high-income (for the most part) customers willing to pay for a certain image or a guaranteed quality, while feeling relatively secure that someone else isn’t walking down the street with the same bag or coat that they purchased for half the price. “There’s a heuristic in consumers’ minds that high price means high quality,” says Gita Johar, a consumer marketing expert and professor at Columbia Business School. “There are customers who are loyal for that reason and once you hold sales, you enter a slippery slope.”
Vuitton, the flagship label of French luxury giant Moët Hennessy Louis Vuitton, allegedly destroys products at the end of each season instead of discounting unsold stock. (The company declined to comment on this practice, which was previously reported in several trade magazines.) The items listed on Tiffany’s page on Gilt, the flash sales platform, are vintage rather than new and sold by an unauthorized dealer. Hermès and Chanel may hold yearly or bi-annual sales for a tiny number of seasonal products, but the former doesn’t place discount tags on its famous leather goods.
@elonmusk Advisor at Tesla seems to be acting shady here, no? https://www.reddit.com/r/teslamotors/comments/54wrlf/weird_situation/.compact …
And this policy of no discounts isn’t confined to fashion houses. Tesla’s chief executive Elon Musk recently emphasized the company’s “no discounts ever” policy for new vehicles after an analyst criticized the brand for cutting prices on its Model S luxury sedan. (The only exceptions: unless a car was damaged or was a floor model.)
Others have found more novel ways of cutting prices. On its website, Everlane highlights the production cost of each item, its markup and a (higher) price that it claims its more traditional competitors would charge for a similar product. Everlane has held “pay what you want” promotions, where it offers customers differing price options on select goods. At the lower prices, customers are warned that the label makes no profit. (Everlane, Tiffany and Vuitton declined comment for this story.)
The dearth of sales does translate into one downside for consumers who are prepared to pay full price: A rise in counterfeits. “A Picasso never goes on sale,” says Audrey Azoulay-Sadka, a luxury branding specialist at Boston College’s Carroll School of Management. But just as art lovers who aren’t multi-millionaires can buy prints and reproductions of Guernica, bling-bling lifestyle aspirants who can’t afford to pay top dollar may turn to fakes as social signifiers.
As much as $461 billion worth of counterfeit goods (or the equivalent of the gross domestic product of Ireland and the Czech Republic combined was traded in 2013, according to a recent report from the Organization for Economic Co-Operation and Development. The OECD said that Vuitton and Rolex, another label that almost never discounts, are among the most counterfeited in the world (Though not a luxury brand, Nike was also on the list, perhaps reflecting the ubiquity of shoes.) “Counterfeiting is a big issue, which is why brands have to remain interesting by coming up with new collections and limited editions,” says Azoulay-Sadka.
Still, accessing limited edition goods is a challenge for die-hard fans. Additionally, brands that don’t discount may maintain tighter inventory control anyway because they don’t have the option of flogging off unpopular items. “I’m very conservative with new products,” says Wang, who produced his first pair of sneakers in just one color and in a limited size range.
Businesses have an argument against discounting. Experts and entrepreneurs say that, perhaps somewhat counterintuitively, not periodically cutting prices may actually be a more consumer-friendly strategy. “Sales are a kind of pressure tactic to push you to buy something now,” says menswear entrepreneur Kent Wang, who doesn’t discount his eponymous label. “If it’s a good product at good price, you should buy it when you want to, and not have to adjust your life to a sales cycle.”
“You’ll always be playing the guessing game of finding out when you can get the best price, or this season’s styles at the best price,” says Johar. For time-pressed shoppers, a fixed price “is meant to help customers. It’s satisfying to know you’ll never get ripped off.”
Of course, if you’re able to afford Vuitton and Hermès, paying thousands of dollars for a bag probably won’t sting as much. The Boston Consulting Group tracked seven luxury handbag brands from 2002 to 2012 and found that prices rose by 14% annually, when inflation averaged at 2.5% per year. Specially-made Hermès Birkin bags can retail for over $280,000. The rest of the population will either have to save or — if they really buy into the social status that they believe the brand bestows upon them — make do with a slightly more accessible item like a scarf or a key ring.
Of course, this is a policy that helps these companies’ bottom line. LVMH reported revenues of 9.138 billion euros in its most recent quarter, up 6% from the same period in the previous year. It didn’t break down performance by brand, but noted that Vuitton had “strong momentum” with iconic lines and new models selling well. Wang says growth is steady for his brand while revenue for privately-held Everlane is expected to hit $100 million this year, up from just $6 million in 2012, estimates financial intelligence provider PrivCo. For its most recent quarter, Tesla surprised analysts by reporting its second most profitable quarter ever.