The Downward Spiral of Apparel Discounting

For consumers, there is no doubt that there is a buzz associated with buying a bargain; the fear of missing out is followed by satisfaction and excitement once the discounted purchase has been made. But, not so long ago, apparel shoppers were forced to wait until the January sales if they wanted to bag a discounted garment from autumn/winter collections, with price promotions, as a rule, confined to biannual end of season stock clearing events.

All too aware of the lure of a discount, post-recession apparel retailers quickly turned to discounting as a means of fighting for survival, sparking a pricing trend that continues to dominate the apparel landscape. Pre-Christmas sales quickly became the norm, and then the US tradition of Black Friday found its way to the UK, creating a climate of frenzied bargain shopping that now runs right through the festive period.

But, the festive frenzy masks a worrying retail landscape. Not only does the protracted period of discounting reduce the amount of time dedicated to full-price trading, it creates a consumer conditioned to shop only in sales and reluctant to pay full price at all, eroding margins and, in the longer term, potentially damaging brand equity.

Consumers happy to hold out for a bargain

While apparel retailers initially adopted discounting as a short-term means of dealing with a difficult economic situation, fashion shoppers have quickly embraced it as a long-term habit. With Black Friday, Cyber Monday and pre-Christmas sales now a hard and fast fixture on the apparel retail calendar, shoppers – still in the prudent mindset of a post-recession consumer – are happy to hold out for big ticket items, such as winter coats, boots or party dresses, that they’ve had their eye on in the knowledge that a pre-Christmas discount is likely to be on the horizon.

While the sale will be made eventually, with consumers happy to play the waiting game, margins are eroded at what should be the most profitable time of year. Black Friday results are revealing that, more often than not, the big boost to the bottom line that apparel retailers set out for doesn’t appear at all, with retailers at the mercy of savvy discount-focused consumers.

Brand equity suffers as discounts deepen

While apparel discounting is clearly a dangerous tactic, it is easy to see why retailers have ended up in the situation that currently prevails, where discounts are spiralling deeper and deeper. The arrival of online and mobile shopping means cheap fashion items shipped from China are now just a click away, while fast fashion stores have created a competitive environment where the focus is on bargain prices 365 days of the year. Why would consumers expect to pay full price when the high street is saturated with cheap fast fashion and sales are a regular fixture of the retail environment?

Looking further ahead, if the discounting spiral continues, there is a real threat to hard-earned brand equity, with US department store Macy’s currently a cautionary tale. Two months after opening the first three stores in a new discount chain called Macy’s Backstage, Macy’s is now ramping up the roll-out, with plans to open 50 new Macy’s Backstage stores within the next two years. These stores will sell Macy’s merchandise and clearance items at discounts of up to 80%. Macy’s is by no means alone in this tactic; Nordstrom, Kohl’s, and J Crew all have similar lower-priced outlets, but it is difficult to see how this move won’t hurt the brands in the longer term, eroding margins and the equity of the parent company. After all, why would today’s discount savvy shoppers visit the full-price store when there is a cheaper option available on the same street?

Breaking the discounting cycle poses a challenge

With cheap fashion and discounting so entrenched in consumer behaviour, breaking the cycle is a very difficult prospect, but the downward spiral of industry-wide discounting simply cannot continue indefinitely without incurring a number of casualties. With retailers all too aware of the difficulties of the situation, the first signs of a turn in the tide may have been evident this year. While a number of high street apparel retailers opted for a more considered week of price promotions rather than a day of bargain basement flash sales on Black Friday, a number of smaller fashion brands opted out altogether, promoting instead considered, conscious consumerism. Danish brand ELSK closed its website for the day, while Fat Face launched a charity effort proclaiming a “thanks for giving” day and People Tree said the day was ‘Just Friday’.

While low-priced fast fashion doesn’t appear to be going anywhere fast, putting an end to the deepening spiral of discounting will need a concerted effort from the industry as a whole. Instead of lining up to take part in the race to have the lowest possible pricing, apparel retailers should be looking to shout about what they do well, reinforcing the equity of their brands and creating a retail climate that doesn’t rely solely on the buzz of a bargain.