Last week, two makeshift consortiums of designers and retailers signed open letters agitating for the realignment of the delivery and markdown calendar. These moves have their roots in longstanding issues with the broken fashion cycle, and change is overdue. While it’s clearly absurd for consumers to shop for cashmere turtlenecks in August or shorts in February, the early delivery schedule also puts unnecessary pressure on independent designers. By the time May and November come around, most of their clothes go on sale, eroding profitability and brand equity.
But there is an elephant in the room that nobody has yet addressed: one of the key reasons that markdowns happen so early in the season is pricing: in recent years, full-price designer fashion has become stratospherically expensive.
Take a look at any luxury e-commerce site and you will see it peppered with $1,500 boots, $900 sweatshirts and $500 t-shirts. A cursory browse of Ssense, for example, can lead you to $690 cut-off denim shorts from Saint Laurent, or a $1,350 "destroyed" cotton hoodie from Givenchy. Over at Net-a-Porter one can purchase a Bottega Veneta leather coat for $9,800 or an appliqué dress from The Row for $18,000.
In this way, luxury fashion has become the perfect reflection of the growing economic stratification that has gripped Western society. There is the 1 percent who can afford such prices, and the 99 percent who shop on sale. What we are witnessing, when it comes to discounts, is a cat and mouse game between the fashion industry and its consumers, one in which everyone, understandably, acts in their own self-interest.
What's more, fashion companies know this. After all, a lot of big brands also control their own retail networks where they set the prices. And the rest provide retailers with a suggested markup that they are expected to adhere to. These markups hover around a 3.0 multiplier, making a $1,000 coat cost $3,000 in a store, and that is before the costs of shipping, duty and taxes are included and passed on to the consumer.
According to one New York retailer I spoke with, some brands are now asking for a 4.0 markup at retail, fully expecting most of the clothes to sell at a 40 percent markdown. Which leads us back to the skewed fashion calendar. If a brand expects such a state of affairs, then it's quite reasonable to assume that retailers will want to go on sale early in the season in order to move the merchandise. Hence, if you want markdowns pushed back, start with lowering retail prices, which will allow more people to shop at full price.
Outrageous prices are not good for anyone. They are not good for many brands, as evidenced by the actions we saw last week. When you price your wares too high, they simply don't sell. According to The Economist, even the most desirable luxury brands move barely over half of their clothes at full price. According to Bain, last year €37 billion worth of designer goods ended up in outlets, an 85 percent increase over five years.
High prices are also damaging for high-end shops, creating an image that's out of touch with consumer buying patterns, then lowering that image due to early and heavy discounting. And high prices are certainly not good for consumers. When brands excessively markup their goods, they put them out of reach of most consumers, alienating them in the process.
The resale market has exploded in recent years, and everyone in the industry is asking why. Partly, it’s because the prices for new designer clothes are so utterly out of touch with many consumers. The luxury fashion industry does not only cater to the rich; in fact, it cannot function without the aspirational middle class, which has been thoroughly priced out of the market except at its lowest levels, awash in premium mediocre goods.
It wasn't always this way. In 2000, a pair of Gucci loafers cost around $350. Today, it's more like $800 — $350 barely gets you a Gucci belt. In the last two decades the prices of luxury goods have far outpaced inflation, with price hikes of 20-25 percent in some years.
Is there a way out of this? Japan provides a good model. There, the retail markup for domestic designer fashion from brands such as Comme des Garçons and Yohji Yamamoto hovers around 2.0. Many other brands set retail prices so that they make 60 percent, while the retailer makes 40 percent. Most clothes sell out before markdowns. Winter sales start after New Year's Eve, but by then the pickings are slim because the fashion consumer has been conditioned to pay full price.
There is no reason why such a system cannot be replicated elsewhere, especially in Europe, where a lot of luxury goods are produced. Remember, few people will be in the market to buy your $4,000 coat, regardless of when it’s delivered, if the price is too high. So, if you want to fix the fashion calendar, start by lowering prices.
Eugene Rabkin is the editor of StyleZeitgeist magazine.
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