High-end fashion brands such as Michael Kors, Coach and Ralph Lauren, which until recently have relied on discounts to entice new customers, are now looking to scale back and recover their brand image.
Discounts and department stores concessions enabled the brands to attract price-conscious consumers and make their products widely available to shoppers. But while discounts entice customers, promotions can affect profit margins and brand status.
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Fashion brand Michael Kors has seen a steady decline in its same-store sales growth since 2014. Endless promotions in its stores and at department stores made the brand seem less exclusive and less attractive to customers who would pay a full price for the items.
In order to recover its position as a high-end retailer, the brand will be reducing the number of promotions and pulling back from department stores, making the brand less available to the mass market.
“We think that this is critical for us … to protect our brand image,” CEO John D. Idol said on a conference call with investors in 2016.
According to Idol, the brand has become ‘very promotional’ which caused the profit margins to decline.
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By GlobalDataIn a November 2017 earnings call, Idol said that the company had reduced the number of promotional days by 40% during the quarter, and according to a Morgan Stanley note to investors, this strategy is proving effective.
Coach and Ralph Lauren have also suffered damage as a result of discounting at department stores.
In 2016, Coach said it would be shuttering 25% of its 1,000-plus wholesale locations along with a ‘reduction in markdown allowances’ to preserve the brand’s status.
Ralph Lauren CEO Patrice Louvet pulled stock from 20% to 25% of department stores in August 2017. He claimed that discounting was damaging to the brand and that shoppers only spend money on ‘exciting’ apparel.
“Exciting isn’t selling a generic product with more and more discounting,” he said.
To avoid having excess stock left over, which is most vulnerable to markdowns, Ralph Lauren is tightening inventory levels, which have shrunk by 31% in the past year.
The high-end retailers plan to produce a more limited selection of products and speed up the supply chains in order to stay on top of trends and keep up with fast fashion retailers such as H&M, Zara or Topshop.
