A survey carried out in London and reported on CNN on November 25th indicated that 40% of retailers intended to offer discounts for the 2009 Christmas season compared to 90% in the comparable period in 2008.
With nothing being certain for this Christmas sales period due to rising unemployment and volatile retail sales and consumer confidence indices in both Europe and the US, other measures are being taken at retail level to limit the discount blood-letting which has badly wounded the retail luxury market this year.
One way to recover margins
Efforts are being made to recover prices and margins and to achieve this objective short term up-market luxury outlets are reducing inventories and limiting the number of products available for sale.
This is tantamount to saying to the consumer that if you want this bag you will have to pay the US$5000 price tag for the exclusivity of owning it. This strategy is extending the luxury = exclusivity equation to (luxury + exclusivity) = scarcity. The idea is to prevent consumers holding off purchases in the hope of paying much less in the January sales.
Will this work? This is a risky strategy. Up-market brands risk running out of merchandise and lose profits. However, after last year’s problem of too much inventory and being forced to slash prices to empty the shelves, which really "cheapened" the exclusivity part of the luxury equation, it seems preferable to sell out and bring in scarcity as part of the now extended sales equation.
Did the fever turn into an epidemic?
The discount fever of 2009 may have made consumers reflect on the real value of a US$5000 bag. Is it only worth US$1500 which I paid last Christmas? Is creating scarcity on the retail front really the answer? With 40% of London retailers intending to offer discounts for the Christmas shopping period, can anyone deny that this is still a buyers’ market?
In third world countries where the number of middle class consumers is limited, it is much easier to say to a customer that there are only two pairs of shoes in his size and therefore he should buy now. Scarcity is already built in to the retail sector in these countries.
Applying such sales techniques in New York, London or Paris may well backfire as such consumers are historically used to choice, competitive pricing and now with "discount fever" not a faint memory any more, they will soon see through the opaqueness of this strategy. ("How do I know that he only has two pairs in my size?" one may think before walking out of the store).
Luxury stores should also consider what will happen if demand is weak when trying to sell at full price. What will they do? This will be a confirmation that the goods are not worth a price tag of US$5000 if they are marked down in January as stock levels persist. All very, very risky as far as I can see, especially as the threat of "scarcity" at the time of writing has not encouraged the consumer to spend, spend and spend more early in the Christmas season?
What to do?
Good marketing is all about limiting the risk of failure. You have to find out what the customer wants and what he is prepared to pay. This has changed during the recession after buyers were infected with discount fever last year. Credit is also scarcer and people are tending to count their pennies more.
However, it looks as if many luxury outlets have decided to run the risk of either running out of their "scarce" merchandise, which would be regarded as a "success" or risk having to return to discounting in January if this does not work out and irreparably devalue the "exclusivity" of their products. Neither is in the comfort zone at this stage.
Christmas shopping
Another alternative could be to try and sell more in China where consumer confidence and retail sales are sky high. The number of consumers is increasing and not declining and sales of luxury as well as mid to high end products is booming.
Why risk the ire of Parisians, New Yorkers and Londoners when there is a whole new world of consumers out there in Shanghai and Beijing.
