Bargain Bin
There’ve been sales a plenty for the past month and a half and it looks like the future will only see more markdowns for the next month or so:
Retailers will most likely try to wean shoppers off such deep discounting in February and March, when they begin introducing their spring merchandise. But if their attempts to sell at full price fail, then consumers will once again feel they have the upper hand, and will wait to see prices fall.
What I think’s missing from this picture is that what will most likely curb the discounting would be dramatically reduced volume of orders. Since stores have already bought all these, say, sweaters from manufacturers they may as well offer them at steep discount. But if the only way to move merchandise is to slash margins to an unsustainable level, the way you deal with that come spring is by ordering way less stuff in order to spread the pain between the retail and manufacturing sectors. And realistically, it seems to me that we’ll have a long time to wait before consumer spending re-captures 2007 levels. Aside from the recession and the current drop in employment and incomes, previously the country was consuming substantially more than it was reducing. We now need to first pull out of the recession and then correct the global trade imbalances — only when that is done are we going to see consumer spending return to where it was before.
And with stores ordering fewer products and reducing their aspirations in terms of overall volume, they probably won’t want to keep nearly as many stores open. Lots of empty spaces at the local mall.
18 Responses to “Bargain Bin”
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December 27th, 2008 at 9:00 am
the country was consuming substantially more than it was reducing.
Matt’s typos are fine, except when they are really weird and distracting, like here. What did he mean?
December 27th, 2008 at 9:24 am
“reducing” = producing
December 27th, 2008 at 10:14 am
I got another idea. How about they start selling stuff at a fair price and stop trying to market it up for a 70% profit margin?
December 27th, 2008 at 10:28 am
This is one of those things where Matt needs to learn a bit about the businesses he’s talking about. A lot of merchandise is purchased on credit or sold on what is almost a straight-up consignment basis. One of the reasons suppliers love H&M is that they’re one of the few apparel stores that pays 100% cash up front.
But yeah, mall vacancy rates have already shot up. The US economy is going to need to find at least one new thing to do that is productive and another that is entertaining to get us out of this mess.
December 27th, 2008 at 10:31 am
As the economy begisn to right itself I think we will see an improvment in the sales small-ticket items, since many such items (e.g., clothing) are necessary and their purchases can only be deferred so long. Other items of that sort (books, etc.) are little luxuries that people will spend money on to make themselves feel better.
Big ticket items, the sort you need to finance, will be in the can for a while.
December 27th, 2008 at 10:39 am
Hi, this is a special message from Jennifer Palmieri.
When Matthew Yglesias says:
previously the country was consuming substantially more than it was reducing.
he is speaking purely for himself and not for CAP or CAPAF, since “reducing” does not make any sense.
If he has said “producing” instead of “reducing”, or at least corrected this glaring typo in reasonable time, I would have signed off on this blog post as an official CAPAF doctrine.
But as is, forget it.
December 27th, 2008 at 12:00 pm
I’ve wondered for a long time if MY uses some advanced voice recognition software to produce his posts instead of typing. That might explain both the productivity and the typos.
December 27th, 2008 at 12:57 pm
pretty spot-on, yglesias.
Missed one element of the equation though — and this via friends who are currently buyers at Sacks and Barneys: canceled orders. Merchandise is ordered well ahead of time. What you’re seeing in the Q4 markdowns is an attempt to deal with the earlier over-orders. Supply is obvs being reduced for Q1 next year to cope with near-zero demand (resulting in extremely heavy layoffs in the fashion and design industry right now. the fallout of this (turning new york into the art scene of the 70s???) might be interesting.)
BUT – moral of the story here -
one way retailers reduced supply in the short term is to cancel orders. basically just refuse chunks of merchandise, put the onus on the labels. this has pushed a HUGE wave of heretofore “expensive” designer merch into the Century 21s/Loemans (sp?) of the world, where they can be sold basically at cost.
All of this re the 27% decline in Q4 luxury sales (in a more recent post): ‘luxury’ industry volume was mostly sustained by perfume and handbags. when the swiss were saying that it’d be safe, they mean historically — prob. pre-90s — when the perfume/bags model really hadn’t gone mainstream yet. think of it as the ’starbucks effect.’ i drank lattes for a few years, but now i’m back to drip. but the .001% who always drank lattes will keep on drinking lattes.
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