Very interesting article on some designers choosing to take a margin hit because of the weak $. Seems counterintuitive for the luxury market, but I guess they know what they are doing.
From New York Times.
Retailers Limit Purchases of Designer Handbags
Retailers Limit Purchases of Designer Handbags
FOR products that are truly
in demand, like Wii game consoles, tickets to the Super Bowl or cans of
corn Niblets on double-coupon day, it may seem reasonable to limit the
number a customer can buy at one time.
But readers of the fine print on the Web sites of luxury retailers
like Saks Fifth Avenue, Neiman Marcus and Bergdorf Goodman may be
surprised to discover that such a policy also now applies to designer
handbags, like Prada?s latest ruched nylon styles, which cost $1,290;
Bottega Veneta?s signature woven leather hobos, at $1,490; and the new
rectangular Yves Saint Laurent clutch that looks like a postcard addressed to the designer (with a $1,395 stamp).
?Due to popular demand,? potential shoppers are warned, ?a customer
may order no more than three units of these items every 30 days.?
Popular, the bags may be. But how many of the customers who can
afford them really want more than one, or for that matter, three?
On its face, the policy sounds odd; that is because it really
doesn?t have anything to do with popular demand. Rather, it is the fear
that foreign buyers, taking advantage of the severely weakened United
States dollar, will hoard the bags, then resell them in Europe or Asia,
where the same items in Prada and Gucci stores typically cost 20 to 40
percent more. The popular Yves Saint Laurent Downtown bag, which is
restricted to three per customer at Saks Fifth Avenue and Bergdorf
Goodman, costs $1,495. At Harvey Nichols in London, the same bag is
£910 (or about $1,796).
Foreign tourists who are treating American department stores as if
they were a nationwide outlet sale have largely been viewed as
beneficial to retailers, and by some estimates those shoppers were the
only bright spot in what was otherwise a feeble holiday sales season.
But that spending power has not been so welcome to luxury companies
like Gucci and Prada, which have spent the last decade trying to reach
those customers in their home countries by opening expensive new shops
throughout Europe and Asia.
Now those companies stand to suffer a sting from increasingly
educated comparison shoppers, if not a more serious blow from a gray
market of designer goods resold from American stores.
Ron Frasch, the chief merchant of Saks Fifth Avenue, which has 54
stores across the country, said the number of foreign shoppers trying
to buy multiple items in stores was ?pretty minor,? but he added, ?it
is certainly an issue that we watch.? Besides restricting online sales,
Saks may deny a customer?s purchases of duplicate merchandise in stores
on a case-by-case basis.
?What we try to do is use a lot of logic and common sense if we
sense that someone is taking advantage,? Mr. Frasch said. ?We monitor
at the store level and at the corporate level for any patterns. We are
very sensitive, first and foremost, to serving the customer, but
secondly to any potential for reselling by customers.?
Ginger Reeder, a spokeswoman for Neiman Marcus, said its online
policy applies to certain bags and shoes sold from designers who asked
the company to limit sales.
?We work with our vendors,? Ms. Reeder said. ?It?s primarily a
protection for them, to protect their distribution from bags getting
out there on the gray market.?
For now, the policies of Saks, Neiman Marcus and Bergdorf Goodman
apply only to online sales of handbags and shoes from Prada and the
Gucci Group labels (Gucci owns Yves Saint Laurent and Bottega Veneta),
but not other luxury brands like Dior or Givenchy, which are owned by
the competing fashion conglomerate LVMH. Meanwhile, LVMH sells its
Louis Vuitton handbags online only on its own site, www.eLuxury.com, where the policy is even more strict: two of each style per customer, per calendar year.
There are no stated restrictions on shopping inside the 39 branches
of Neiman Marcus or at the company?s Bergdorf Goodman store in
Manhattan, Ms. Reeder said. But a sales associate at Bergdorf said this
week that the staff was instructed to use discretion with customers
looking to buy a large number of items. A salesman at the Louis Vuitton
store across the street said a customer trying to buy more than two
bags would be asked to give a reason. Both spoke on condition of
anonymity because they are not allowed to speak to reporters.
None of the makers of the designer brands would speak for the record
about such policies, but several executives acknowledged privately that
they are meant to prevent bags from being resold.
During the luxury boom of 2000 and 2001, when shoppers lined up in
the street outside Gucci, Hermès and Vuitton shops in Paris, the
companies drew criticism for putting into effect bag-per-customer
limits that appeared to be aimed primarily at Asian shoppers. Some
Asian customers complained they had been banned from Vuitton stores,
and they could be found on the Champs-Élysées offering to pay Western
tourists to buy bags for them.
What has surprised some retail analysts is how quickly the concept
of quotas has arrived in the United States ? and not just for handbags.
In its online store, Apple currently limits customers to five iPhones per order.
?This is not an unusual situation for designer brands,? said Claudia
D?Arpizio, a luxury goods consultant at Bain & Company in Milan.
?It?s unusual for the United States. What is changing now is the
geography of the touristic flows.?
In the ?80s, American and Asian tourists commonly shopped for luxury
bargains in Italy, when the lira was weak against the dollar. But since
the dollar began its spiraling decline against the euro in 2000,
shortly after its introduction as the European common currency, the
value-minded tourist tide has shifted to the United States.
Travelers who buy multiple items to resell to friends back home are
only a small portion of the gray market, said Fred Felman, the chief
marketing officer of MarkMonitor, a San Francisco agency specializing
in brand protection. It is more problematic when professional networks
of buyers resell luxury goods through small shops throughout Asia, or
through online retailers like eBay.
Last month, Patricia Pao, an independent retail consultant, arrived
at Newark Airport from Los Angeles and was approached by a young woman
who asked her to help close a suitcase by sitting on it. The woman was
returning to Slovenia with what appeared to be 200 pairs of designer
jeans, the least expensive bearing a price tag of $228.
?She said that by selling the jeans back home she could not only
cover the expenses of her trip, but she could also make a profit,? Ms.
Pao said. ?The weakened dollar makes everything here look like a
bonanza.?
As anecdotes about foreign shoppers flocking to buy electronics,
toys and Manhattan real estate become more common, analysts are
debating the long-term impact of shopping tourism on brands that place
a premium on their exclusivity.
?Imagine a scenario where you have people buying all your stuff,?
Ms. Pao said. ?In the short term you benefit, but in the long term, you
don?t, because you don?t know where the sales are going, and that is
very scary to these people.?
Given how difficult it is to control every aspect of distribution,
though, some would argue that an indication of desirability ? a
burgeoning gray market, say ? should be seen as an opportunity for
brands to capitalize when demand is strongest.
?There is an underground railroad of iPods going back to Europe,?
said Susan Nelson, an executive director of Landor Associates, a
branding agency in San Francisco. ?Contrary to damaging the brand, I
think it creates a bit of a mystique.?
Of course, handbag quotas may not be the most effective solution
anyway, considering the many ways determined shoppers can get around
them ? by using multiple credit cards, for instance, or buying from
more than one store. But the alternative ? raising prices of European
luxury goods sold in the United States, as many companies have begun to
do ? risks alienating American consumers, or giving an advantage to
American luxury competitors.
?What they don?t want to see,? Ms. Nelson said, ?is for the market to be flooded with what they consider to be cheap handbags.?
Especially not their own.
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