The holiday shopping season is almost here, and with it comes the flurry of deals and discounts.
While for consumers, discounts are a welcome feature of the fourth quarter, they’re a mixed bag for brands. Frequent heavy discounts, along with stiff competition from major retailers and marketplaces like Amazon, which can afford deep cuts, mean brands that want to sell full price face an uphill battle.
This was a theme of the discussion at the Glossy & Modern Retail Leaders Dinner hosted in collaboration with Global Payments on October 14. A gathering of leaders from a variety of fashion and beauty brands discussed the risks of overreliance on discounts and how they’re training their customers to not only shop when items are heavily discounted.
One executive, who currently leads direct-to-consumer for a large designer fashion brand, said her former employer, a celebrity-backed fashion brand, is leaning heavily into discounts around the holidays. Her current brand, she said, is trying to move in the opposite direction.
“It’s really about sustainable business and making sure that you’re in market when it’s time to be in market, but you’re not saturating the market with discounts,” she said. “And right now, we’re seeing so much discounting, and we’re trying to train our customers out of that habit.”
She also said the fashion industry’s seasonality makes it particularly susceptible to the perils of too much discounting. It’s harder to sell suede when it’s 100 degrees out, so brands often mark things down out of season to clear out extra product.
The emphasis on discounting is understandable. Despite economic pressures, American consumers are still increasing their holiday spending. While growth has slowed, consumers are still spending more each year during November and December, and growth has been accelerating since a drop-off in 2021. Data released on October 15 by the National Retail Federation projected consumer holiday spending to be up 4.2% this season.
Discounts are a tempting way to lure in customers to shop with a brand for the first time, but leaders at the dinner questioned whether those first-time customers are worth giving up profit margin for.
“It’s super cheap to afford customers on markdown,” one fashion brand founder said. “But it’s not profitable. But you can’t feed yourself on markdowns alone. In the moment, you might not feel like it matters because you’re just excited to see sales and see the product moving. But ultimately, it’s costing you.”
LoyaltyLion, a retail loyalty tech company that works with brands like Victoria Beckham and Beis, released data in August suggesting that non-discount holiday promotions will likely be a major strategy this upcoming season. After analyzing millions of transactions and loyalty interactions from last holiday shopping season, LoyaltyLion found that brands offering loyalty members early access to new products rose by 66% from the previous year, and exclusive in-store events for members increased by 55%. Meanwhile, exclusive discounts for loyalty members fell by 35%.
Another leader at the dinner offered similar insight, saying that brands should save discounts for their most loyal and most valuable customers, rather than their lowest-value first-time customers.
“I used to work at a company where 90% of our sales were people from our membership program,” he said. “We didn’t give any special discounts for first-time buyers because we wanted to reward our most valuable, most sticky customers. We had a 20% discount for our loyal customers all the time. It’s the same if you were a stylist or an interior designer. You’re valuing and incentivizing commitment and loyalty. Discounts are a hard drug to come off of, but if you believe in your product, it’s worth doing it.”
