Retail Lessons From Abercrombie & Fitch And Neiman Marcus

I've been writing quite a bit lately about the importance for specialty retailers to carefully plan and manage their cash and look to renew and reinvigorate their customer experiences. I've not written as much about the necessity of adjusting retail assortments to respond to the consumer's reluctance to spend as they once did, particularly at the high-end. In the last week, however, two prominent national retailers have outlined very different approaches to retail assortments and pricing in the current recession, which highlights the choices facing many specialty retailers.

On the company's conference call after releasing their 3rd quarter financial results, Burt Tansky, CEO of Neiman Marcus, said the company was going to begin layering less expensive goods into their assortments in response to lagging sales of luxury goods. NM joins other high-end retailers, including Saks, Barney's and Pottery Barn, in adjusting their assortments toward more value-oriented price points in response to current conditions.

On the other hand, Mike Jeffries, chairman and CEO of Abercrombie & Fitch said during his company's annual meeting that A&F would not be moderating it's price points or changing it's commitment to premium pricing. Despite having to run a clearance sale of significant proportions to clear out fall and winter merchandise this spring, the Company, he said, remained committed to "protecting our brands."

As much as I admire A&F's stores and merchandise, and equally struggle with both NM's stores and assortments, I'm convinced that the current environment requires an approach by most specialty retailers similar to what NM is doing. For most specialty retailers, their value proposition has been built around fashion, lifestyle, quality and service, far more than around price. In some instances, an aspirational price even drove the appeal. But things have changed.

Value, intrinsic value, has now become part of the value proposition, across all sectors and price points, and high-end retailers and products are not immune. Conspicuous consumption is out, conspicuous value is in.

For specialty retailers, this means retail assortments have to be re-skewed toward more moderately priced products, and if they're more modestly styled, all the better. It's not a matter of eliminating price points at the top of the range, it's a matter of reducing those assortments and increasing assortments at the beginning of the range, to shift average retails downward in a way that doesn't sacrifice margin. It may mean de-emphasizing some vendors, and brands, while increasing the emphasis on others. For most specialty retailers, reducing the average price within retail assortments by anything less than 20% is probably not enough.

There are very few retailers today, especially specialty retailers, who haven't encountered price resistance in some form or another. This is a part of the new normal. Price resistance today shows up in just about every customer metric, from traffic counts to transaction counts, conversion rates, average ticket, and UPT's. It shows up in sales decreases and eroded margins. Companies that fail to respond, like A&F, will continue to pay the price in markdowns and negative cash flow. A&F may have the wherewithal to bear this burden, but few others in this environment can. If you haven't reviewed your assortments and average price points, now is the time.

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