Sales without discounts

Fashion retailers are sitting on £15bn of unsold stock – that’s £300 worth of clothing for every UK adult. With physical stores reopening, retail analysts are forecasting record levels of discounting.

But don’t celebrate too soon. Deep discounting is unsustainable. And also a key reason for the intense pressure on industry profitability, even before the Covid crisis.

We explore what retailers can do to stimulate sales beyond discounting.

Lockdown puts on the pressure to discount

Since retailers closed their doors in March, stock has been laying dormant. Even with online channels still up and running, lockdown meant the need and desire for new clothes diminished, with the exceptions being lounge and leisure wear.

As a result, warehouse storage has reached 90% capacity and some brands have resorted to storing containers of summer fashion in railway sidings. In a desperate bid to shift stock, fashion retailers like H&M and Reiss are offering discounts of 70%.

As the more affluent mass take the opportunity to trade up to discounted luxury, and the cash-strapped trade down to value retail, it is the mid-market retailers who are suffering the most. Debenhams, Monsoon, Oasis and Warehouse are just some of the fashion retailers who have folded into administration.

Alternative strategies to stimulate sales

While blanket discounts may feel like the only option, there are some examples of bucking this trend.

Some brands have rejected discounting altogether, seeking to avoid damage to brand equity and bottom-line. Gucci and Chanel, for example, have confidently hiked handbag prices by up to 9% to mitigate lost store sales.

Other luxury fashion retailers have deployed targeted events to avoid mass-discounting. London-based Rejina Pyo, for example, has run 24-hour drops on specific products using promotional codes on Instagram.

At the value end of the market, Boohoo initially enjoyed a 45% sales surge. Boohoo pivoted its ranges to loungewear and generated a range of engaging online content to win over customers who would have typically gone to Primark’s physical stores for their fast-fashion fix.

However, a recent Sunday Times investigation has exposed unsafe working conditions and below minimum wage pay at Boohoo’s manufacturing site in Leicester. The result has been an immediate 10% drop in share price. In this way, the health crisis has subjected the ethics of fast-fashion to further scrutiny, with consumers and shareholders increasingly expecting companies to deliver on ethical practices, not just topline sales.

Avoiding the discounting trap longer-term

Since the majority of UK fashion retailers are tied to costly physical sites and lack the capital and agility to pivot their operations, we don’t expect those red-stickered labels to be disappearing any time soon.

However, as a recent industry movement “#rewiringfashion.org” demonstrates, the crisis has shed light on the need to break this addiction to discounting in order to become more economically and environmentally sustainable. This requires:

1 / Investment in more agile sourcing

Making ongoing sourcing decisions based on a desired end product rather than a fixed supplier. This enables retailers to rapidly adapt to fluctuations in demand.

2 / Omni-channel capabilities

Developing sales channels which integrate physical and digital. This establishes more points of sale and provides a seamless shopping experience.

3 / A de-escalated discounting calendar

Reducing the frequency of discounting and adjusting internal forecasting accordingly. This reduces excess stock build up, the need to heavily discount, and ultimately helps re-set consumer pricing expectations.

Avoiding the discounting trap is no easy feat. Achieving all this relies upon understanding the consumer, confidence, agility and clear thinking.

Incite can help – get in touch today.

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