The retail industry is struggling.
One reason is that they have trained consumers to shop on sale.
Macy’s has blamed many reasons for its nosediving sales, from unseasonal weather to a drop in tourist traffic. Both may be true, but a walk around the store’s flagship in Herald Square in New York City proved that the company may be trapped in a vicious cycle.
The store was a mess, which detracts from any level of luxury the company may have had. It’s difficult for consumers to want to throw down lots of cash for a Gucci bag when the experience unsettling.
But everything is on sale, which has conditioned people to shop to do exactly that. (It’s a losing game — the store is in disarray and putting everything on sale because less people are shopping there, which only in turn makes a company lose even more customers.)
Perhaps most notable is its huge “Last Act” clearance section, which renders the store an off-price bargain bin.
J. Crew is yet another store fighting to retain its prestige amongst consumers. It has also been struggling to figure out how to get consumers to pay a premium.
Quality complaints and fashion misfires have hurt J. Crew more than anything, though it has been working on both. Fortunately, the excess inventory that it’s trying to clear is making room for something promising: the forthcoming line from former Madewell designer Somsack Sikhounmuong which will launch this fall. It was met with adulation from critics at New York Fashion Week in February.
But will shoppers pay full price since they have come to know J. Crew as a discount retailer?
Banana Republic knows this all too well.
Gap Inc. CEO Art Peck has explained just how hard it is to wean people off of promotions.
“Same is really true on Banana, where we have backed off” on promotions, Peck said, adding: “And I will be the first to say that when you start tightening up in promotion, you are playing a game of chicken with your customers … And so we’ve been playing that now for really the last quarter. And we’ve seen more effects on this quite honestly.”
In other words: it’s hard to get them to do something other than shop on sale.
“It starts to train the customer to expect 30% off or 40% off going forward, and the only way to untrain her is to have a big fashion hit that they happen to buy very little of, and train her to start [shopping] more like [the store was] a fast fashion retailer,” Mizuho Securities Managing Director, Betty Chen, told Business Insider.
The problem, though, is simply the way these companies were built: they do not operate like fast fashion brands — like Zara — which has the supply chain (and an internal data center) that permits it to react to what customers like and dislike, permitting it to not have to resort to incessant discounting all of the time. Zara can adapt rapidly to fickle consumers, helping keeping it immune from the current bloodbath that is the retail industry.
“If I had to condense the foundations for Zara’s success, I would say it comes down to agility and flexibility,” Neil Saunders, CEO of retail consulting firm Conlumino, said in an email to Business Insider in December.
This has been troubling for traditional retailers who haven’t been able to adapt so easily. Worse, the onslaught of discounting has put Nordstrom in a tricky spot: it’s been forced to resort to lots of discounting — in hopes of stimulating sales and also to rid itself of excess inventory — but even the sales are misfiring at Nordstrom, arguably because there are so many sales out there already.
“Where we’re seeing a big miss is in our clearance and promo — promotional business. So what we take away from that is, number one, the clearance and promotional environment is really noisy,” Nordstrom copresident Erik Nordstrom said on a recent earnings call. “There’s a lot of excess product out in the marketplace. It’s certainly easy to shop online. There’s some heavy, heavy discounting going on. And we’re seeing that effect in our business.”
There was arguably a time when there was a reason to shop at a premiere, traditional retailer versus a fast fashion store. It may have cost more, but the experience and quality gave people a reason to shop there. With companies competing to bottom out the next with sales — and clearance prices rivaling those of dirt cheap fast fashion retailers, which can churn out on-trend clothing much more quickly than traditional retailers can — consumers need more reasons than ever to purchase clothes at a premium price.
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