Apr 16, 2009

Into the (Discount) Looking Glass

You have to admire Eileen Fisher, who designs luxury women’s apparel and sells it through department stores. She’s exasperated with her retailers (not uncommon among manufacturers).  They’re deep-discounting her entire line, along with others, almost as soon as her garments touch the racks. And she’s doing something about it (not common at all).

 The Wall Street Journal reports Ms. Fisher has suggested retailers use “scalpel markdowns” to prune only the weak SKUs while preserving margins on the vast majority of her items. She’s also preparing to rent space in host retailers herself. Store-in-store, as this technique is known, will allow her to control merchandising and impose needed discipline on pricing. 

She  might want to consider another alternative.

A couple years ago the Supreme Court showed new-found openness to certain types of price discipline.  In ruling on Leegin vs. PSKS, the Court basically reversed a sweeping precedent created almost a century ago, a time when manufacturers were the only ones that were big and strong,  and retailers were almost all small and relatively weaker in setting market policies. Today’s situation is nearly the reverse; it’s now the manufacturer who often stands in need of legal recourse.

If a producer can demonstrate, the Court has now decided, that it's distribution system is doing extra things to create more choice for consumers, then it should be permitted to require its retailers to uphold the price minimums needed to fund those extra costs. Not in all cases, and only under certain circumstances, but a watershed new channel strategy opportunity nonetheless.

I think Ms. Fisher should look into some new contracts. Establishing legally structured price management tools to ensure adequate activity in the retail system would likely be a lot easier than forward integrating into company-owned retail. If she approaches her partners adroitly, and it looks like she’s good at this, I predict the stronger influence she seeks over consumers' experiences will actually lead to stronger working relationships with retailers

Of course, she should work closely with her lawyers to do all this in a legally defensible way. They always want a piece of the action!




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