The luxury fashion market is one of the most respected industries in the world. Designers such as Hermes, Gucci, Prada and Burberry are amongst the favourites for fashion lovers willing to spend a significant amount of their income to purchase one of these coveted items. Now consumers won’t have to draw out a month’s worth of their money to grab a handbag or heels. These days, renowned brands are slashing their prices and offering discounts online and through outlet stores.
For most fashion buyers, 50% off Christian Louboutin shoes or a clearance on Prada handbags would be a dream come true. Considering a Prada handbag can set you back $4000, it’s no surprise that people would rather wait until Boxing Day to purchase a good from the Italian fashion house. These discounts allow consumers a chance to own an extravagant item without being drowned in debt.
Whilst most high fashion brands offer discounts on their last season goods, there are three brands that refuse to decrease prices. These three include French fashion brands Chanel, Hermes and Louis Vuitton. Their reason being discounts will decrease the value of their products. They also want to remain as the most exclusive fashion brands in the world. These brands go as far as to burn all unsold merchandise after a long period of time. So which is the better business model? Do discounts increase store value or does it lose the essence of the brand?
Why Luxury Brands Should Discount
- To Attract New Customers
Luxury fashion brands need to attract new customers to increase their revenue. Unfortunately, it can be difficult when most consumers cannot afford the products in those stores. Therefore, the introduction of discounts on old inventory will appeal to buyers on a budget. This is because most consumers do not have the finances to buy in season fashion and will be satisfied to purchase last season inventory. In addition, customers will feel better about their purchase knowing they saved hundreds of dollars. This will help designer brands clear out their stock and meet new potential customers.
- To Increase Sales
Designer brands can earn a lot of revenue from discounting old inventory. In 2016, consumers spent $2.28 billion in Australia on Boxing Day alone. This shows how much consumers are willing spend on products when they have a red sticker on it. Due to this, big names such as Michael Kors, Balmain and Yves Saint Laurent have all decided to have sales on their last season products. Talking about Michael Kors in particular, the New York based designer became a billionaire in 2014 because of his two fashion lines Michael Kors Collection and MICHAEL Michael Kors. Whilst Michael Kors Collection handbags can cost up to $2,500 dollars, you can purchase a bag from MICHAEL Michael Kors for $200 on discount. Therefore, cutting down prices on designer labels can increase revenue for a brand.
3. To Compete In The Market
Having discounts allows high fashion designers to remain competitive in the market. This is because most designer labels do not have the prestige to warrant premium prices on all their goods. The most infamous example was when Mulberry halved its profit in 2014 when Chief Executive Bruno Guillon decided to change Mulberry into an ‘upscale’ brand. Unfortunately, consumers did not think Mulberry was worth over $2000 per bag and the British label had failed to increase their prices. As a note to all designers, it takes decades to create a signature piece worthy of premium prices. Take a look at the Prada Saffiano bag. Whilst Prada does have outlet stores with limited stock, the one item consumers will never see on sale is the Saffiano bag which is considered one of the best signs of status and wealth for women.
Why Luxury Brands Should Not Discount
- It Lowers Perceived Value
Discounts on designer label can be disadvantageous to their brand. This is because consumers will make certain assumptions when a brand’s discounts are too high. For example, when consumers see a pair of shoes at 70% off, those consumers will most likely question why a high fashion brand would allow such a discount. This could be harmful to a brand’s image especially in a market associated with the words luxury, extravagant and exclusive. This is illustrated on British online outlet The Outnet. Almost all items are 50% off and the highest markdowns can be range between 80%-90%. Whilst consumers may be happy initially, the heavy discount will make them question the brand’s prestige and value. By marking down prices so low, consumers may see the designer in a negative light.
2. It Suffers From Identity Crisis
Luxury brands are called luxury brands for a reason. This means that anything that doesn’t fit into that definition is often a bad sign. So when the word ‘outlet’ in mentioned, luxury may not be the best word to describe the designer. Yes every fashion designer excluding the French three (Chanel, Hermes and Louis Vuitton) has an outlet store as one of their locations. Of course the discounted items are still pricey for most shoppers, it’s the outlet that trivialises the brand’s image. Let’s use Oroton as our example. The flagship stores are designed with decadent gold posts and polished wooden floors to exude luxury and class. Now look at the outlet stores and you will see that it looks like any other outlet store in the building. When luxury brands are using outlets to sell their old products, they are essentially damaging their brands by telling consumers their products are not as special as they seem.
3. It disrespects loyal customers
Designer brands such as Prada, Christian Louboutin and Valentino have such high brand recognition because they have loyal customers purchasing their items regularly. Therefore, when brands offer discounts, they are damaging their relationships with their best clients. This is because consumers who are regularly purchasing full price luxury items expect a high level of exclusivity. It is shown that when wealthy buyers see ‘normal’ people wearing big designer brands, they often feel cheap and ordinary. This is because designer items are a sign of wealth. Therefore, a ‘normal’ person in possession of let’s say a Fendi Peek-A-Boo bag, wealthy consumers will most likely find a better alternative.
So for fashion brands looking to crack into the luxury market, these are the advantages and disadvantages of discounting. It’s crucial to understand the differences in business strategies so you can decide which one works for your brand personally. Of course there are negatives to putting your items on sale but it’s doubtful burning your next collection is the more logical alternative.