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Bye-bye, high-end handbag discounts

There's just something about a sale that makes shoppers salivate. It's the thrill of the deal; it's assurance that they paid less than they could have and got more for their money—or some combination of these psychologies.

Retailers put goods on sale when they want to stimulate demand, or clear out merchandise that isn't resonating. But there's a careful balance that companies have to strike.

In recent years, it's become more of a growing concern that retailers are training consumers to buy only when merchandise is on sale—deep sale—and that's a dangerous place, especially for brands that want to be considered premium.

Selling goods for less than full price usually means a less than full profit margin, but it can also ding consumers' perceptions about brand equity.

Fairly classified as higher-end, handbag and accessory players Coach, Michael Kors, Kate Spade, and Ralph Lauren have gotten themselves into a quandary in recent quarters. In order to excite shoppers and entice purchasing, discounting kicked up a notch. But there's some pain as these brands work their way away from promotions.

Coach CEO Victor Luis explained on the earnings call that "for both the quarter and year, our total sales in North America were down 20 percent, impacted by our deliberate actions to curtail promotions and elevate brand perception."

The short-term pain could very well be worth it for these brands in the long run. The hope is that the stronger the brand perception among consumers, the higher the value associated with the brand...


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