So, it seems Tiffany’s and Abercrombie & Fitch, two of the most stubborn retailers in refusing to lower their prices during a global recession, have got their comeuppance.
Tiffany’s reported yesterday that holiday sales fell a whopping 21 per cent, while Abercrombie’s plunged 24 per cent in December.
The thinking behind the refusals to reduce prices is that making their products available to the masses tarnishes brand image. Their products are no longer as exclusive — and who wants diamonds or overpriced branded sweatshirts when everyone can get their grubby plebian paws on them?
Tiffany’s and Abercrombie aren’t the only ones to think this; Throwing his hat into the luxury exclusivity ring this month is Versace CEO Giancarlo Di Risio, with some jaw-droppingly elitist comments from an interview with Il Sole. (Via UK Vogue):
“Our regular client was not queuing on January 3-4 in Milan or Rome but was on the slopes in St Moritz or on a boat in the Caribbean,” he said. “We want to offer a real luxury and not to open our doors to the consumption of young girls who can put the designer handbag of their dreams on their arm with less than 300 Euros. We are not interested in that.”
Luxury houses that do offer significant discounts at sale time have a negative impact on the sector, he added.
“If I lower the price of an evening gown from 7,000 Euros to 5,000 Euros, or that of a couture collection bag from 2,300 Euros to 1,700 Euros, it doesn’t change much,” he said. “But for those who lower the price of a bag by the same percentage and sell it in a shop for 500 Euros, then the music changes.”
Despite the snobbery, Versace and Tiffany’s and Abercrombie may have a point.
Calvin Klein, for instance, is only just beginning to recover from its 1990s licensing bonzanza that saw CK jeans, underwear, etc. suddenly available to the masses. Sales were brisk but the top-end of the brand was tarnished. The same thing could be argued for the chavtastic Burberry — it’s only now beginning to claw back some of its couture credibility with the success of its Autumn 2008 collection.
In other words, even with cheaper companies like Primark, seemingly making a killing out of consumers trading down, and Abercrombie and peers suffering, the jury may still be out on the long-term success of the ‘refusing to lower prices’ strategy. Though we’d add that with a seeming backlash against wild spending, consumption on the scale that the Versace CEO is outlining above may no longer be de rigueur among the (remaining) rich.
Also, preserving your brand image by refusing to flex on prices does assume one thing: that your shareholders have a very long-term view of the company and their investment. And how many retail investors right now have the balls (baguettes?) to hang on in this environment is an open question.
Related links:
In the lap of luxury, Paris squirms – New York Times
The socialist shopper – FT Alphaville
Luxury fatigue – FT Alphaville
Sale – Net-a-porter