Just wanted to point out something interesting about the risks that retailers run by discounting their wares in a time like this.
An obvious one is the slim margins that cut into profits when additional discounts are provided. An important indicator in retailing is same-store sales at stores that have been opened for over one year. Offering deals and discounts can drive sales, so your same-store sales number looks nice, but your profit number may not be so pretty. Of course, you also avoid other expensive problems like too much inventory left over after the holidays, so I think they know what they're doing.
Importantly also is the risk of diluting brand equity with too many discounts. Consumers are quick-learners and if they see that a certain retailer continually offers discounts, they will wait for those discounts. If they see big, flashy 40% off signs, they may not feel that those Ambercrombie jeans or lululemon yoga pants are worth $90+ anymore.
Well lululemon is attempting to avoid that by refusing to provide discounts.
Christine Day, the former Starbucks executive who became chief executive at Lululemon earlier this year, said the company won't follow the lead of rival retailers and rely on deep discounts to build sales. Heavy markdowns would hurt the brand's image, she said.
Instead, Lululemon is offering deals to its customers for yoga classes. It is also marking down some prices, which is pinching profit margins. But it will not run 60 to 80 per cent off sales to clear merchandise, she said.
Marina Strauss. "Lululemon shares drop 25% on lowered outlook." ReportonBusiness.com (December 11, 2008). http://www.theglobeandmail.com/servlet/story/RTGAM.20081211.wlulustaff11/BNStory/Business/ (accessed December 22, 2008).
I still refuse to buy their clothes, but that's a story for another day.