As global lockdown measures ease, the fashion industry embarks on a long road to recovery from the pandemic. While adapting to trade in the new normal, we analyze what regional discounting strategies looked like when the virus first broke out to now on the verge of a global recession – plus considerations for retailers to adopt moving forward.
- When the 2008 Global Financial Crisis (GFC) hit, retailers began relying on constant markdowns to encourage spending and move through inventory. This disrupted the promotional calendar, removing the need for regimented discounting cycles and sparked consumers’ addiction to markdowns.
- The pandemic has encouraged retailers to rethink and reset their traditional trade processes. Businesses are already calling for realignment of the fashion calendar so products are dropped closer to the selling season and designers are allowed more time for creativity. While end-of-season discounting is delayed to January and July, impacting mid-season sale events which have inspired heavy price cuts such as Black Friday, Cyber Monday and Singles Day.
- Key markets have significantly changed their discounting strategies throughout the course of the pandemic. The majority of regions opted to mark down more items than last year to help shift stock while consumer confidence was low, yet avoided heavy reductions to help product retain its value. Despite the turbulence the fashion industry has faced, many of these regions have kept to this strategy – even offering shallower discounts than when the pandemic reached critical mass or pulling back on the proportion of items reduced.
- EDITED data suggests retailers are moving away from making aggressive markdowns as they teeter towards a global recession, retraining consumers to shop at full price and signifying a shift into a new era of discounting.
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Has discounting changed YoY?
We analyze discounting by regions now and compare to our previous report published when the pandemic first broke out
- The average discount depth for Australian retailers is 41% – the same as when the pandemic first hit critical mass early March and also in line with 2019 figures. However this is the highest of all analyzed regions. What’s changed is more products are reduced both YoY and compared to March. With a challenging bushfire season preceding COVID-19, we can expect a heavy promotional period to help drive sales in this market.
- China maintained its strategy from March, offering shallower discounts compared to 2019. However, the region is being more conservative post-pandemic, pulling back the average reduction from 60% to 37% and significantly reducing the proportion of products reduced.
- Germany has dramatically increased the number of products on discount YoY in March. Like Australia, it’s maintained the average discount percentage YoY and from when the pandemic first broke out – currently sitting at 35%.
- Italy is continuing to discount more product and at a higher level than last year. However, its strategy is less aggressive than back in March with a smaller proportion of products reduced and a lower average discount.
- Spain and South Korea have continued marking down more products at a shallower depth YoY – a strategy adopted by most of the regions during the pandemic. The average discount amount has dropped even lower YoY and post-lockdown in these regions to protect margins, with Spain at 39% vs. 36% and South Korea at 33% vs. 38%.
- Strategies in the US and UK have unfolded similarly. When coronavirus first broke out, both markets reduced fewer products at a lower rate than in 2019. Now, on average, 62% of products are reduced across US retailers compared to 54% two months ago. To offset the higher amount of markdowns the average discounting depth has dropped significantly – from 42% in 2019 and 39% in March to 36% now.
- As the UK high street moves towards its ‘sale of the century’ with a forecasted £15bn worth of stock needing to clear, the proportion of products discounted deepens to 55% compared to 40% in 2019. Unlike the US, the average discounting percentage online holds from March at 36%.
Check out our article to monitor the weekly shifts in each region’s discounting strategy.
What are retailers clearing?
The cancellation of vacations has resulted in swimwear receiving the most substantial markdowns, averaging at 39% across regions combined. Dresses and all in ones follow, both with an average reduction of 33%. With customers working and socializing over Zoom, discounts for bottoms sit at a higher rate than tops at 37% compared to 33%.
Italy has the most uniformed approach to discounting with outerwear reduced the deepest and equal weighting given to accessories, bottoms, underwear, dresses and all-in-ones. Footwear saw the shallowest reductions in this region as well as in China. Underwear was reduced the lowest in Australia, Germany and the US. While South Korea, Spain and the UK were more reserved with their accessories reductions.
The impact on the luxury market
As luxury designers move to increase their prices to cover the rising costs of raw materials and cushion margins post-coronavirus, multi-brand e-tailers deepen their discounts and bring sales forward to move through inventory.
On luxury brands’ own sites, there’s been a noticeable trend of moving to archival sales to reduce collections from past seasons and private sales to maintain exclusivity.
- Neiman Marcus, which filed for bankruptcy amid the pandemic, ran its ‘up to 50% off’ designer sale a week earlier than in 2019. The proportion of product discounted grew from 46% in 2019 to 49%, yet the average percentage lessened from 45% to 40% off.
- Deeper discounts were taken at Bergdorf Goodman with its average discount percentage growing from 43% to 49% YoY.
- MyTheresa, which is owned by the Neiman Marcus Group is now exempt from its Chapter 11 proceedings, maintained its proportion of discounts YoY and lowered its average reduction percentage from 38% to 36%. Last year, the e-tailer ran a sale on its Chinese site on May 28th with 37% of the range reduced by an average of 40%. It will be interesting to monitor the shifts this year in light of the pandemic.
- Last May, Liberty ran an ‘up to 40% off’ sale only shoppable through its loyalty program. This year, the offer has deepened to ‘up to 50% off’ and is available to everyone. 33% of its assortment is advertised as reduced.
- Farfetch held its sale communications as per last year with an ‘up to 50% off message,’ Yet this year, discounts are deeper and more products are reduced. 31% of products are advertised as discounted at an average of 38% compared to 25% with an average of 34% off in 2019.
- SSENSE kicked off its sales last year on May 21st, but this year it was moved earlier to the 11th. Up to 50% off was communicated both years. Currently, 58% of products are advertised as reduced with the average discount at 30%.
Comparison: retailers promoting sales
- Burton UK ran a sale of up to 60% off, progressing to 70% in March. The sale message has now dropped to ‘up to 50% off selected lines’ and pivoted to ‘wear now, wear later.’
- Fashion Nova US has continued running its 30-80% off sitewide promotion.
- Topshop and Topman UK moved from 60% to 70% off in March. In May, spend and save offers were prominent. In the latest emails, Topshop advertised ‘up to 50% off’ while Topman ran ‘50% OFF 1000+ Styles.’
- Mango UK ran an ‘up to 50%’ offer in March. ‘Flash sales’ or ‘quick sales’ for the same amount ran throughout May.
- Anthropologie US ran 25% off everything. The offer is now ‘50% off sale.’
- Urban Outfitters US favored deal of the day offers including ‘50% off spring favorites.’ Now ‘up to 40% off’ has been popular throughout May.
Looking ahead: How to discount during a recession
- With retailers looking to realign their drops closer to real seasons, future trends will start to have a longer shelf life. Consider holding off on reductions now and retrain your customers not to expect discounts all year round. Look to realigning reductions with a more traditional end-of-season sale event in July or August when the season is actually ending.
- Avoid sacrificing your margins with deeper discounts to entice customers to shop. Black Friday 2019 saw discounts of 20-30% have a higher rate of sell out than deeper reductions.
- Retailers such as Marks & Spencer are ‘hibernating’ evergreen stock such as basic tees and chinos to be resold in Spring 2021. Before discounting too deeply and devaluing more trend-driven items, consider if it can be reworked into future assortments.
- Look to allocating reduced stock to an outlet site to allow new season styles to sell at full price without diluting brand image.
- Consider ‘spend more, save more’ promotions as a way to clear through stock with less damage to margins.
- Community and giving back have emerged as some of the key themes throughout the coronavirus pandemic. Old Navy donated over $30 million worth of clothing to charities to avoid heavy discounting. For a less drastic approach, use discounts to reward customers in your loyalty programs or those who have supported your business during this time.
- Be creative with your approach. Consumers’ inboxes will be bombarded with bold red sales messaging. Make your discounting communications as appealing as your new season edits and tailor them to what your customer will look to snap up post-lockdown.
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