Value wins sales as discount costs squeeze margins

Shoppers expected a discount.

Retailers complied, driving sales if not building loyalty. In search of the best value for money, consumers often visited more locations, physical or online, and spent across multiple brands.

To discourage this recession-conditioned bargain hunting behavior, brands experimented with various pricing strategies while maintaining quality. Some retailers lowered the opening price somewhat but later offered less of a discount when putting the merchandise on sale.

Higher sourcing costs complicated these efforts to preserve margins. This double hit of discount pricing and rising costs especially hurt small independent apparel brands. Some discounters suffered if an exclusive focus on price limited the value message.

Certain brands excelled

Despite the pressure to discount, some of the strongest brands, such as fast fashion leaders Zara and H&M, enjoyed relative success receiving the full markup in part because consumers, perceiving value, switched to these brands.

H&M also gained sales by encouraging women to cross-shop and purchase items for their children. A strategy usually associated with grocery retailing, apparel brands increasingly promoted cross shopping to increase share of wallet. Nike successfully emphasized discounting in at least part of its line. The discounts may have appealed to people trading up to Nike, and its reputation for innovation, from the private label brands they purchased during the recession.

With its combination of youthful style and price, Uniqlo drew shoppers seeking value for money. The Japanese brand intensified its presence abroad, opening several additional stores in Manhattan including a flagship on Fifth Avenue.

Spending caution prevailed

While spending caution affected most demographic groups, some middle-aged people with disposable income increased their apparel purchasing, not only for themselves but to help ease the financial strain on their grown children and grandchildren. And some of the upscale brands showed strength.

Calvin Klein ascended to the Top 10 in brand value this year. Part of PVH Corporation, whose holdings include Tommy Hilfiger, Izod and Arrow, Calvin Klein’s success resulted from its heavy investment in global marketing, $300 million worldwide, and careful cultivation of the brand in fashion magazine advertising and editorial.

The brand also benefited from its presence in both mature and fast growing markets. It derived just over half its revenue in North America, about a quarter in Europe and 17 percent in Asia. Over 750 Calvin Klein stores worldwide, operated by more than 40 licensees, also drove awareness. Its outlet stores offered value. To gain more control over the brand, Calvin Klein bought back franchises.

Store presence drove sales

Ralph Lauren, which also bought back franchises, increased sharply in brand value as more affluent shoppers returned, at least in the US, where the brand has its widest exposure. Of the more than 100 full-price Ralph Lauren brand stores worldwide, 60 are located in North America with the rest evenly distributed in Asia and Europe. Around 10,000 department stores and other locations carry the brand. And around 6,000 of those are in the US. The brand also experienced strong online sales and benefitted from almost 200 factory outlet stores.

The rise in the Hugo Boss valuation reflected the brand’s strong financial performance, with worldwide sales up 19 percent, led by a 34 percent increase in Asia and a 24 percent rise in the Americas. But sales rose by a healthy 15 percent even in the troubled economy of Europe. The brand-owned retail stores primarily drove the growth. The brand added 85 stores during 2011, ending the year with a total of 622. It too bought back franchise operations.

Customer touch points added

Technology tools added excitement to sales and marketing as apparel fashion apps became, literally, an important customer touch point. A Nike app used GPS that enabled runners to track their pace, distance and location. Adidas shoppers could use an app that provided local store locations, inventories and coupons.

In a Moscow store, Top Shop introduced an augmented reality mirror that enabled shoppers to see how they looked in a garment without the hassle of trying it on. Macy’s added an augmented mirror to its flagship Manhattan store in late 2010. Customers select an item of clothing displayed on an iPad application and view themselves in the mirror wearing the item.

Relatively late to ecommerce, Zara introduced its US site and H&M planned for a 2012 launch. Social shopping sites also influenced apparel sales. By posting photos of merchandise to a variety of social shopping sites, shoppers could gain fashion advice or help locating hard-to-find items.

The developing markets experienced relatively strong sales, with China’s Metersbonwe, which serves a young urban audience, appreciating in brand value. In contrast, the Li-Ning brand value declined as it unsuccessfully attempted to pitch the sportswear brand toward youth. Prominent in China, with merchandise in more than 8,000 outlets, Li-Ning continued its international expansion effort, entering India and launching a US website.

BrandZ Top 100 2012

BrandZ Global 2012 Report Top 100 Report

Top 100 Chart

Methodology and valuation by Kantar Millward Brown

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