A few weeks ago, we attended (code for "shopped" and "did our part to stimulate the economy") Nordstrom’s famous semi-annual sale. The premise has always been a novel one—put in-fashion and current season goods on sale now, before they are put on regular (and higher) prices post sale. A great way to get a jump on the season and we know of many customers who circle the date on their calendar to buy for the year. It has also traditionally enabled Nordstrom to avoid the massive price cutting and clearance that occurs at most retailers towards the end of the season. And, while there have been precious few winners in the retail space of late, Nordstrom has been able to maintain decent margins even as their sales have consistently averaged down double digits over the past six months.
Our experience with the Nordstrom semi-annual sale this year yielded two critical observations:
• The average retail price point has gone down. Besides the products that were on sale, everyday priced items from well known brands were at seemingly lower price points than in the past.
• This would seem to mean one of two things: Nordstrom is taking a lower initial mark-up on items in order to be more value priced, and perhaps avoid taking clearance at the end. Or, manufacturers are developing product at lower price points from the outset. Perhaps they are settling for less or maybe slightly de-specing the goods. Or, of course, a little of both.
Either way, it means that customers will have access to lower priced products earlier in the season. On the downside, it means retailers like Nordstrom will need to sell more pieces to keep up, which has been a constant issue in apparel retailing for the last decade as access to lower priced manufacturing has driven price deflation.
We also look at this in the context of some other trends we note of late:
• The advent of private sales at luxury goods retailers has created the notion of a secret sale within the store. The sales can be targeted via direct mail to their better consumers or through a “wink-wink” system in-store.
• The growth of on-line purveyors like the Gilt Groupe (which is worth its own blog) has made access to luxury goods on sale an everyday phenomenon. There seems to be a growing list of manufacturers who will supply goods through the on-line channel.
It is clear that retailers are going to have alter their approach to business in many fundamental ways if they hope to get a piece of what continues to be a dramatically reduced pie. Pricing strategies and pricing integrity will play a crucial role in the future. While we can admire Abercrombie’s steadfast refusal to discount, it is also fairly evident that they are falling on a mighty big sword (with comps down a staggering 30%). It is not at all clear that their customer base will come back even as they have maintained brand integrity.
Has retail gone on permanent sale or will we see pricing recover along with the economy?