Everyone Loses The Race To The Bottom

What’s Off In Off-Price

A major American retailer is racing to open more locations of their new off-price expansion while a giant in the already low priced, fast fashion world announced the opening of theirs.  This addiction to prices so low you can’t say no needs to stop. Do I think so because of the impact disposable retail goods have on the environment? Sure, but that isn’t what I am here to talk about today. These brands are inflicting long-term damage on themselves by continuing to confuse their customers as to who they are or understand what pricing means across the entirety of their business.

At its core I don’t hate off-price as a category, when it’s honest. The sector was born of a very real need for stores and designers to turn excess inventory into cash to fund next seasons buys or production. Originally they were clearing houses in less desirable locations, like the basements of department stores, where customers exchanged experience (and buying out of season) for a deal. Everything was above board.

 

I have an aversion to off-price and it’s future for three reasons:

 

ONE – Exposure Of Pricing

It’s very often not above board. The strike-through (original retail) price in a multi-brand, off-price setting is, many times, complete and utter bullish*t. With production lead times getting shorter and teams getting smarter, there just isn’t enough excess inventory to sell to all of these houses of alleged overstock. What started out as a clever business solving a real need has turned into ruse, as brands create goods meant for off-price stores, complete with a fake retail price.

Just what conclusions do you think customers are drawing when these goods fail to meet expectations? Whether a “real” brand is producing a lesser quality line for off-price chains, or has set up an off-price extension of their own, it’s a lose-lose scenario. The failures will either damage the customer’s opinion of the brand’s quality or, upon acknowledging the quality was sub-standard to begin with, eliminate the perception of value thus undermining the entire operation and exposing the lie.

I can’t see a sustainable path for physical off-price stores. As the veil of mystery over pricing lifts, consumers will demand more transparency. The FTC has already started to go after off-price stores for deceptive pricing practices. So assuming the inability to lie to one’s customers about the original retail price, the pitch is really “we’re selling you lower quality goods for a bit less money,” which I hope everyone can admit is not a very compelling reason.

Two – Less Excess, Less Ownership

When not using straws is a trending topic on social media, I fail to see see how anyone could miss the disposable clothing trend coming to a close. I have to believe there is a point at which the irony of the single use (or at least single season) garment being worn by the kid posting about straw usage or solar panels triggers enough ironic self awareness to create action.

The future of our industry will feel closer to a live experience where you rent or test something than a store where you purchase something, of which there are 75 more of in the backroom. This will be great for consumers. Things will be shipped directly, cutting down on cost and pollution associated with transit, or just printed at home or locally. The items we do own will be designed to last longer or be modular where we purchase updates and components or recyclable back into the printers. Apparel sharing might still have a little ways to go in terms of ick factor but someone will come up with a “cleaner than new” pitch for a subscription-apparel-sharing-service where you get items delivered to you that are shown to have fewer germs, viruses, etc. than a store or even your closet and people will adopt.

Most of us spend a day swapping our summer and winter wardrobe. This includes packing one season into rubbermaid bins and heaving them under our bed frame or down to the basement. Then we unpack them when it’s time, deciding what might actually wear, what still fits, and coming up with hanger codes to know in the next 6-8 months that we never wore something so it’s time to take it to the resale shop.  Seriously, can you imagine anyone doing this once you can keep a few weeks of perfectly fitting, high quality garments in your closet and then exchanging them for fresh looks? It won’t feel like renting the runway, it will feel like owning the whole mall. It won’t be the “Uber of apparel,” it will be the “Spotify of apparel.”

The point is, there will be less excess and that’s bad news for a sector designed to sell excess. We’ll own less, which is bad for a sector designed to sell a high volume of low ticket items. We’ll expect more durable products, which is hard to do at an off-price-point. And we’ll demand an incredible experience with fewer, more novel, higher quality goods.

 

Three – The Internet

While I typically think people talking about ecom crippling brick and mortar retail are missing the point that commerce in general is shifting to unified brand experiences where “the channel” is irrelevant, they kind of have a point with off-price. Every retailer’s favorite boogie man is a much bigger threat to the solely price motivated consumer than the experience driven consumer. If a store is not offering customers a way to form a bond, develop a relationship or earn their trust then why would they expect their loyalty?

If a business is built on the premise that they are selling things that used to be one price for a now lower price then of course that same customer is going to see if it can be found elsewhere for an even lower price. That is where the race to the bottom begins until the margins are so slim that the only way to remain profitable is to grow the volume and the only way to grow volume is more locations and the only way to stock more locations is producing more shoddy goods with pretend real prices and thus the cycle continues.

The idea of selling an increasing amount of poor quality merchandise for an ever narrowing margin to deal seekers that couldn’t care less about your brand with continuously growing competition on and offline seems like a terrible race to be running and one where I predict everyone loses in the end. That is exactly the race off-price retailers are running. I hope to show over my next few articles that building relationships is both less expensive and more fulfilling way of doing business.  

Stay tuned for the rest of this series on pricing consistency.