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Fashion Deflation

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Fashion Deflation

 Jeanine Poggi

The recession is prompting clothing makers and retailers to lower prices.

There's some good news for shoppers amid the economic gloom: Lower clothing prices are coming soon, and not just for sale items. Mainstream brands such as Lacoste and Coach plan to cut retail prices as much as 30% on their fall offerings.

The reason: Fashion producers are trying to anticipate consumers' tighter budgets and avoid last year's drastic markdowns, which can undercut a brand's perceived strength. 'The 70% discounts we saw during the holiday season are risky not just for brand integrity but brand equity,' says Erwan Rambourg, luxury and sporting goods analyst at HSBC.

Despite all the sales, retailers posted big losses in the second quarter. In March, Neiman Marcus announced a second-quarter loss of $509 million. At J. Crew Group, the loss was $13.5 million.

As a defensive action, clothing makers are tightening belts, making do with lower profit margins and passing along the cuts to consumers in the form of lower retail prices.

For the fall, Lacoste will offer cable-knit sweaters, normally $145, for $98, says Robert Siegel, chairman and chief executive of the company. In spring 2010, Lacoste plans to lower prices in other categories, including its signature polo shirts. Price cuts do not mean a cut in quality, says Siegel. 'We are taking it out of our own margins in our attempt to be more consumer-friendly.'

Coach is also planning to trim profit margins, reducing its average handbag price to $300 from $335. Joe's Jeans, which sells premium denim, is dropping its entry price point to $138 from $145.

High-end fashion brands are planning to produce lower-priced products too. Monique Lhullier, for example, will offer several gowns retailing for $2,500. Her dresses usually sell for between $3,000 and $7,000.

Retailers are also trimming their sails. Instead of lowering prices on the lines they usually stock, boutiques are starting to incorporate more accessible products into their collections. Nordstrom plans to spend more inventory dollars on lower- priced merchandise.

Gretta Monahan, owner of Boston-based boutique Gretta Luxe, says in the fall she will begin offering shoes from Vera Wang's Lavender Line, which start at $295. Normally, she carries Jimmy Choo and Brian Atwood, which start at around $400. 'We want to incorporate prices into our selection that are easier for the consumer to digest,' she says.

Eugene Fram, professor of marketing at Rochester Institute of Technology, predicts that other retailers will follow suit.' In terms of pricing, some of the organizations are now on the defensive, like Saks Fifth Avenue and Tiffany's,' he says. 'It wouldn't be surprising to see price reductions of 50%-plus in their attempts to avoid Chapter 11 proceedings. Others, in a stronger position, will have to offer substantially lower discounts, 20% to 35%, to remain in the ballgame until this traumatic period subsides and affluent consumers once again find luxury merchandise more appealing.'

The strength of the U.S. dollar and Japanese yen, vs. the weakness of the British pound and euro, is also affecting prices, says HSBC luxury analyst Rambourg. This may cause some European luxury brands to lower prices.

'Designers see the writing on the wall and realize they cannot achieve the same margins,' says Jennifer Black, founder and president of the research firm bearing her name. 'Those days of 40% to 60% margins are over. Consumers are savvier.'

For the most part, however, retailers and designers will not broadcast reduced prices. Unless you are a loyal consumer, you may not recognize the decreases.

It's highly unlikely that you will see these reductions at true luxury players such as Louis Vuitton and Cartier. 'These brands offer classics, and if Cartier doesn't sell one of its watches today, they can still sell it six months from now,' notes Rambourg.

Roger Kowall, owner of Ohio-based men's boutique Cuffs, says suppliers such as Hermès, Loro Piana and Brioni have maintained their prices for the fall. Burberry and Bally also say prices will remain steady.

'Luxury is all about perceived value,' Rambourg observes. 'If you lower prices you take away that 'wow' effect, which is what defines luxury.'

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