The Saks effect

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The Wall Street Journal ran an excellent article Monday on the lasting impact of Saks Fifth Avenue's drastic price cuts during the 2008 holiday season. Saks' move was almost unprecedented: a luxury retailer, used to receiving premium payment for premium goods, slashed prices up to 70 percent during the busiest time of the year.

"Saks's risky price-cut strategy was to be one of the first to discount deeply, rather than one of the last," the article noted. By acting quickly, Saks was able to grab mindshare and clear its racks of merchandise rapidly declining in value. This didn't help matters as much as hoped, though: Saks reported a 24% dip in January sales, on par with Neiman Marcus and Nordstrom.

The Saks effect has two potential prongs. One is on the vendor side: luxury companies not wanting to see devaluation of product are going to be wary about selling items into Saks moving forward. Designers may keep certain items for their own stores to create demand and maintain a price floor.

The other, which is already widespread, is the entrenchment of Americans' distaste for paying retail price. Customers have long known of product cycles and eventual sales; Saks' rapid discounting--and the rest of retail,the past few months--has taught people to wait for reductions before buying. Even The Economist reported on the recent rise of haggling among everyday items in consumer shopping. These trends may alter the retail landscape for years to come.

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Timely Demise tracks the retail industry as it changes with our unprecedented economic environment. Published by David Wertheimer. Did I miss something? Drop me a line.

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This page contains a single entry by David Wertheimer published on February 11, 2009 7:34 PM.

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