Setting Sale for Safety

Paco Underhill says “it’s heroin” and is suggesting that retailers reconsider. “The more you do it and the more ways you do it, the harder it is to stop,” he recently told The New York Times.

The self-destructive impulse that has Underhill so concerned is the practice of retailers – especially luxury retailers – to begin marking everything down to get people into their stores and clear their shelves and backrooms.

A decade ago, the big department store chains painted themselves into a corner with their constant 25 percent-off sales and 15 percent off that and another 10 percent off if you opened a store credit account. It reached the point where shoppers simply didn’t buy anything that hadn’t been marked down.

When Federated completed its May Co. acquisition in 2005 and turned nearly everything over to the Macy’s nameplate, Terry Lundgren vowed that the era of couponing and deep discounting was over. But that became a nearly impossible ship to turn around. Just look at today’s stores, ads and direct mail campaigns.

The luxury retail brands – Neiman Marcus, Tiffany, Nordstrom, Saks, even Macy’s sibling, Bloomingdale’s – refused to get into the constant markdown game. Until now, apparently. But they’re doing it differently – they’re doing it privately.

So Neiman Marcus doesn’t have huge “25 percent off” banners hanging from its ceilings. But it does have an e-mail campaign, sent to “certain customers,” saying “come in today, Burberry handbags have been marked down.” And salespeople are instructed to call their regulars about today-only specials. They’re calling them “midday dash” sales.

It’s easy to do today, too. Sending a discreet email is a lot more effective and targeted, and cheaper too, than running ads or mounting direct mail campaigns. Bloomingdale’s sent an e-mail this spring to its online subscribers saying, “Today only! Take $500 off your regular-priced online purchase of $1500 or more in Men’s.”

Tiffany insists it wouldn’t engage in such low-rent price promotion, but The Times reported the retailer has lowered prices on diamond engagement rings about 10 percent – apparently to lock in that young bride as a lifetime customer.

What’s wrong with doing anything to survive these days? Nothing, of course, as long as you feel you’re not sullying your brand or turning off the loyal shopper who bought a $1500 bag only to find out her friend got the same one for $750.

The biggest risk, though, is conditioning your customers to expect the sale, the markdown, the specials, the couponing. Can you get them back to paying full price once the economy returns? As Underhill warns, it’s addictive.

The 2009 International Retail Design Conference in Dallas (September 23-25) will be a perfect opportunity to get a luxury retailer’s perspective on this and other subjects. Our opening day keynote speaker will be Burt Tansky, president and ceo of The Neiman Marcus Group. Sign on to register at  www.irdconline.com. Early bird rates still apply.