Discounts Pinching Luxury Brands

Recently, Business Insider reported companies that usually offer consumers up-scale products for a high price will open more discount outlets to drive sales.

Photo By: SounderBruce Via Creative Commons

Photo By: SounderBruce Via Flickr

Stores like Nordstrom have already been doing this with more than 200 Nordstrom Rack discount stores across the country and 121 full-priced stores, according to Business Insider.

Now the problem with this isn’t that the stores aren’t making money, they are. Typically clothing is marked up about 1100 to 350 percent. Therefore, the prices consumers are paying at outlets are most likely still marked up fairly high.

The problem is that the consumer’s perception of the brand is beginning to change, as it’s questionable if these companies are still considered luxury brands.

Photo By: Mike Mozart Via Flickr

Photo By: Mike Mozart Via Flickr

When companies offer their products for a discounted rate, they are targeting a different market. This is a problem that not only Nordstrom will face, but it’s also something Calvin Klein and Michael Kors are currently facing as the latest reports show a decrease in the companies’ profits, according to CNN.

I don’t think these companies can target wealthy individuals who want that expensive and unique product as well as individuals who can’t afford premium items at full price. These types of consumers are completely different and it’s challenging to target both.

Outlet stores have their positives too like an increase in exposure from consumers who may want to test the brand before paying the premium price and a way to hook consumers at a younger age. However, the devalue of a brand is a huge issue for these companies and Luxury Daily suggests that management must be focused on building the brand, not creating low-priced alternatives. Why would someone pay full price if in a few months it’ll be available for half the cost?

What do you think? Do you think Nordstrom and other luxury retail stores should have discount outlets even if it hurts the quality of their products? How do you think Nordstrom can continue to be a luxury brand when they have so many retail outlets?

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7 Responses to Discounts Pinching Luxury Brands

  1. Alex Sorrell says:

    This reminds me of what I’ve learned about brand positioning in my marketing classes. Rolex could have a huge sale tomorrow, everyone buys a watch and the company would make millions, but the Rolex brand would be damaged and even wealthy people wouldn’t buy the brand because it would no longer be a status symbol.

    Creating discounted and cheaper merchandise may be appealing because it could possibly expand your marketshare and be an influx of cash, but here’s the problem: discounts are like a drug. Once a consumer gets a discount they’ll want even more and more.

    I think these luxury brands should concentrate on their primary stores and customers rather than having discounted versions and stores. Having a very strong, loyal and rich customer base is better than chasing after discount shoppers.

  2. Catherine Hahne says:

    Having discount stores does not make a Luxury Brand less luxury.
    Nordstrom Rack has been around since for years and it does not detract from the brand. It is no secret that Nordstrom Rack is where they have the damaged and very old merchandise. However, I still shop at both stores.

    Outlet stores are super common as well and they provide discounts there. The rich still purchase from discount stores because it is a smart move.

    Just because product is cheaper at some stores does not mean the brand is less. Product changes each season so discounts are just part of retail.

  3. Cattarina Lovins says:

    From a public relations branding stand point, the issue is that these luxury brands found in department stores like Nordstrom are losing their identity and sense of purpose. As our PR Campaigns class learned from Simon Sinek, author of Start With Why, it’s crucial to the long-term success of a brand to always start with “why”, not with “what” when creating and branding products so that the brand always understands its purpose. Offering products at low prices is a short-term trigger for desired results, but not a long-term trigger that will foster brand loyalty. When you have brand loyalty, price becomes secondary and in some cases not important at all. Why is that so? Because as much as consumers loves a sale, those consumers are also human beings who love a brand that they can identify with and trust.

    As it pertains to this particular scenario, Nordstrom’s outlet, Nordstrom Rack, doesn’t harm the quality of brands as much as other outlets because Nordstrom Rack typically carries different brands from Nordstrom in addition to top brandname pieces that are only made for outlet stores and pieces from Nordstrom that are out of season. Since Nordstrom Rack carries pieces like that, Nordstrom is not contributing to the devaluation of brands and can continue as a luxury brand because of that distinction. It’s not so much about the department stores as it is about the brands themselves and the decision the brands make when they agree to sell products in outlets and bargain stores.

  4. Megann Jakubek says:

    I think it’s up to the company to decide which audience to focus on: either the wealthy individuals who want an exclusive brand or individuals who tend to shop mark down items. Like this blog post mentions, it’s difficult to target both at the same time. I think this is true because, since the wealthy individuals want an “exclusive” high-end product, they will not feel that these products are exclusive if they are offered at a somewhat discounted price at outlet stores.

  5. Mary Kenney says:

    I think that luxury retail stores need to decide who their audience is. Is it the general public or do they really only want the wealthy to be able to afford the merchandise. Right now I feel a store like Nordstrom is trying to get the best of both worlds. They appeal the wealthy shoppers with the full prices merchandise but also appeal to a completely different audience with Nordstrom Rack. Eventually the merchandise will become too accessible and will not be considered high-end. I think if a high-end company wants to stay available in outlets they need to do it strategically. Maybe one idea would be to not have any many outlet locations. Another would be to have certain lines that will never be available in outlets. There is definitely a balance that needs to be found or a high-end company will lose its value.

  6. Hannah Johnston says:

    I was thinking about this the other day when I thought about the company Coach. They are a designer company that was very popular maybe five years back, but they did outlet stores and had crazy sales that took away the allure of the company, it almost made it seem cheap and tacky even though these bags were very well made. I don’t think companies such as Nordstrom have to be worried but I do think designers do. A big part of the appeal of these designers is that they are elite brands, it’s something special to own something like this. But I already look at Michael Kors differently than say Tory Burch, and thats because Kors has outlet stores and crazy sale just like Coach did.

  7. Matthew Covert says:

    I think companies like H&M and Zara are now becoming the norm in the fashion world. Kanye West said in an interview something along the lines of ‘the old belief was that high fashion wasn’t for the masses because the masses don’t have taste. The problem isn’t that they don’t have taste they just don’t have access.” Access is the issue here. If you want your clothes to be worn by important people you make them more expensive so only they can afford it.
    However that’s all changing now. Fashion has become more accessible than ever in the age of the Internet. Trunk Club is a men’s clothing service in the United States that delivers clothing picked out by a professional stylist that is paired with you automatically when you register for the service. You can try everything on in the Trunk and you send back what you don’t like and pay for what you keep. With that high level of accessibility to fashion, people don’t care what brand it is anymore.

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