Quote of the season

by Deepak Sharma on Monday, December 08, 2008

This quote by Abercrombie CEO, Michael Jeffries in an earnings call with analysts last month. I guess many retailers will feel the after effects of the markdowns this season in the coming 2-4 months.

“Promotions are a short-term solution with dreadful long-term effects.”

Read more in this WSJ story, Abercrombie Fights Discount Tide (Registration required). 

We hear your concerns," said Chairman and Chief Executive Michael Jeffries in an earnings call with analysts last month, but "promotions are a short-term solution with dreadful long-term effects." Marking down clothes now could lead to the brand being seen as something cheap, he explained.

Even in good times, Abercrombie has always shied away from big promotions, though it does try to clear out merchandise at the end of a season. The company's determination to keep prices high as the economy sours has already cost it dearly during the holiday season, which accounts for an estimated 30% of total teen retail sales.

2 comments

Absolutely, After the Cost of Goods the single biggest expense component is Trade promotion spend. Typically ranging between 10 - 15 percent in most of the consumer industries where the products are commoditized, competition is intense and the sales people have no other clue to drive sales than to drop prices either to the retailer or to the cosumer or to both. It leads to a whole lot of mess on the supply chain side and also ends up diluting the customer value proposition and buying patterns

by Vikram Ketkar on 1:01 AM. #

Vikram - Rightly said. While the markdowns can cause issues both on supply and consumer side, there are ways to identify the best combination of price and promotion to achieve desired sales and that is where Demand Optimization can help. But the unfortunate part is that the current recession has led Retailers to reduce prices to an extent which is leading to this imbalance and will affect them greatly going forward.

by Deepak Sharma on 5:54 AM. #