Banana Republic is banking on a buzzy capsule collection, co-signed by a celebrity, to help pull itself out of a retail cycle reliant on promotions.
At the retailer’s presentation at New York Fashion Week, a selection of the Spring/Summer 2017 products were curated by fashion personality Olivia Palermo, its newly hired global style ambassador. The items in Palermo’s collection — an off-the-shoulder eyelet top with matching skirt, a cream tie-bow blouse — went on sale alongside the presentation online and at Banana Republic’s Flatiron store in a continuation of the retailer’s see-now-buy-now showing at fashion week, which it first launched in February.
“We want to generate excitement with the customer, whether she’s here in New York or anywhere in the U.S.,” said Lexi James Tawes, Banana Republic’s svp of global merchandising, at the fashion week presentation on Sept. 10. “Olivia has the ability to connect with different customers of different backgrounds, and they can get a piece of the collection immediately.”
For fashion week, Banana Republic rode the coattails of see-now-buy-now, one of the most-discussed topics this season, and paired it with a celebrity collaboration as part of a broader effort to turn around a pattern of slumping sales. In Gap, Inc.’s most recent earnings report released Aug. 18, Banana Republic sales were down 9 percent.
Like other mall-based retailers, the company is being hurt by a combination of trends: declining foot traffic, consumer behavior that sees more money being spent on travel and experience than apparel, and a pattern of seemingly endless discounts on merchandise that has trained customers to avoid buying at full price, according to eMarketer’s retail analyst Yory Wurmser.
“Retailers like Banana Republic, Gap, Ann Taylor, they overestimated how many people would go to stores to buy. That resulted in really heavy discounts,” said Wurmser. “Then, people began to wait for those discounts. It’s really hard to undo that expectation.”
Still, retailers across the board are working to backtrack on the expectation of a constant sale cycle, which has numbed the intended emotional feeling of scoring a deal. This year, executives at companies like Ralph Lauren, Victoria’s Secret, Ascena Retail Group, DSW have said that they’re rethinking their promotional strategies. Side effects of teaching consumers to expect a discount have had disastrous effects: last year, Ascena Retail Group settled a $50 million lawsuit that claimed its constant 40-percent off deals were “misleading.”
During an earnings call in May, Gap, Inc. CEO Art Peck acknowledged the damage done to the Banana Republic brand by promotional sprawl.
“At Banana, we have backed off [of promotions]. And I will be the first to say that when you start tightening up in promotion, you are playing a game of chicken with your customers,” said Peck. “And so we’ve been playing that now for really the last quarter. And we’ve seen more effects on this quite honestly.”
That “game of chicken” is a battle of will. What comes first: The full-price purchase, on the part of the customer, or the discount, on the part of the retailer. In the promotional cycle, the customer almost always wins.
“Now, there’s always a next discount — there are so many chances throughout the year,” said Nathalie Huni, group creative director at Huge. “If you miss one, there’s another one around the corner. It’s not special anymore.”
Instead of a discount, Banana Republic is offering up its limited-edition collection with Palermo as that something “special.” But it’s hard to believe that it will be enough to undo the damage riddled by discounts.
“I don’t know if this will help Banana much,” said Neil Kraft, founder of fashion and lifestyle agency KraftWorks. “The designer collaboration is a model that fast fashion has taken over, since the high-end designer contrasting with low prices pulls people in. Retailers like Banana aren’t fast enough, or efficient enough, to get the right price to the right market in the same way.”
Kraft said that a complete overhaul is due in order to revive a brand bogged down by poor customer perception. In addition to a resistance to full-price products, Banana Republic’s recent offerings have been panned by customers, and a poor multi-channel effort has failed to link online shopping to its network of brick-and-mortars.
“They need a blank slate,” said Kraft. “Look at how Gucci resurrected itself: They fired everyone, cleared out inventory, and started from scratch. It’s either that, or build a new brand.” Kraft pointed to Ann Taylor’s Lou & Grey brand, which is free from the connotations of Ann Taylor and Loft, as a successful new venture for a legacy retailer.
It’s not just Banana Republic. All mid-tier mall brands are dealing with a well-educated customer who knows how to find the best price online for a product, making it almost impossible to compete on price.
“What they’re seeing is a more educated customer,” said Wurmser. “People walk into stores having done their research. They need to compete on the level of in-store experience: customer service, digital integrations, personalization. The capsule collection is a partial answer — they’ve got a real challenge.”