I sat down today to talk with Syama Meagher, a luxury fashion vet, to pick her brain on the most mystifying questions in the high end fashion industry. In the first of a 2 part series, Syama goes into depth on how to develop a pricing strategy around your two biggest markets, and the best way to deal with surplus inventory using a proper markdown strategy.
Q1: Hi Syama. So we know you’ve had over a decade worth of experience working in the high end fashion industry, formerly working as a buyer for Gucci and holding various ecommerce positions at Barney’s New York. How would you explain your collective experience working in the high end sector, and how has it shaped your understanding of the industry?
SM: The high end sector of retail is one of the areas where most people get attracted to, but it’s very seldom talked about the ugly side of being in high fashion retail. Most people come to the perspective that working at a place like Gucci or Barney’s, that the offices are really beautiful, it’s really nice, everyone’s really well taken care of, but in actuality we had rat infestation problems just like any other company. Fundamentally off the bat most people think that high fashion means glamour and excitement, and yes it is exciting, but from the employee perspective it wasn’t what most people think.
From a retail perspective, understanding how the business works from the inside out is actually really interesting. So Gucci is vertically owned, which means they manage all of their production and manufacturing, so they can set their own pricing. A lot of Gucci’s business is primarily coming out of their flagship and ecommerce locations, so for them selling wholesale to Saks or Neiman’s, isn’t really a primary form of their business which means they have a lot more control over their pricing and distribution model. So when people think about high end it’s important to distinguish between the vertical models (the actual brands) and the department stores like Barney’s, who have to negotiate their prices with brands like Gucci. Same goes for these other high end brands, they hold the keys to their own capital, whereas department stores are almost at the behest of these brands, but also are providing a gateway to another type of customer.
Q2: We know that the luxury fashion industry is fairly price elastic; so what factors are at play when deciding on the final price of a good?
SM: Yea so it’s really interesting here, when it comes to the pricing strategy we had a really cool opportunity at Gucci to go to Italy and visit the factories, see how everything was made, and what’s really fascinating is that there actually is this artisan element and craftsmanship that goes into the production of a lot of these high end products. But these shows are reserved for the high end artisan products, so if you go into a company like Gucci, you’re going to see two different types of pricing. Entry level pricing for Gucci, which is between $800-$1,000, and then the higher tier pricing, between $10,000-$20,000, and I mean that respectively for hand bags. Those products that are made in the second, higher tier range involve a lot of craftsmanship, so when you’re buying that product you’re really buying something that was made by an artisan. But when you’re buying in the entry level range, you’re not really buying the product for the craftsmanship since it’s machine made. It’s really when you get into the higher end products within these brands, that the less logo driven you get and more craftsman based it becomes. So when it comes to the pricing of these products, we’re really looking at 2 different markets that we’re pricing for.
Q3: Wow, so there is quite a large disparity between the price and quality of the two tiers. Could you elaborate a little further on these 2 markets?
SM: Well one is the aspirational Gucci customer, they’re really interested in how many G’s are on the Gucci handbag, and in the size and wear ability of it because they want people to see that they’re carrying it. The other type of customer is really interested in the high end, exclusive products, and are concerned with not carrying something everyone else has. They’re the ones that are going to be interested that it took 2 weeks to make a particular hand bag, or buying something in the new seasonal color, they’re the ones who are interested in the story. So there are 2 different markets that are at play within the luxury sphere, and when it comes to the mark up it’s much easier to determine that of a entry level price point product. So while I say they don’t give us visibility as far as seeing what their cost price is versus what they’re suggested whole sale price is, I can still tell you that the mark up is outstanding. But they don’t actually give us hard numbers to reflect the cost price, and that’s actually the big mystery of high fashion, the cost price remains relatively mysterious for even people working in the office. When you’re buying luxury you’re not necessarily buying manufacturing, you’re buying the brand, so at that point the cost price has become somewhat irrelevant. It becomes more about the demand of the market for your product, as opposed to a smaller luxury brand who’s really selling their brand based on the quality and craftsmanship of their products, so it’s easier to justify their price, whereas these bigger, established brands don’t really need to justify anything.
Q4: A rather hush-hush conversation in the industry is deciding on a mark down strategy. How should a high end brand go about this without alienating their core clientele?
SM: So when it comes to having a mark down strategy as a luxury brand, there are a few ways to go about it. If you’re a start-up luxury brand and you’re in different retailers, it’s very hard to have any control over mark downs. If I’m a luxury brand and I’m selling at Barney’s, and I really don’t want my products to go on mark down, I would say to myself as a new brand, would it actually behoove me to buy back the mark down items and funnel them through my own sample sale process, or do I really want Barney’s to carry all this excess inventory of mine, and how would I want to develop that relationship. Buying back inventory means that you need to be in a fiscally healthy position in order to do so, and if you are in that position, I think it’s actually wonderful to be able to own that supply chain of your products.
Now for a company like Gucci, what we would often times do is have a secondary off price market where we could go and sell those products, by this I’m referring to the outlet stores. So by creating your own off price channel, it allows you to funnel through your own sales mark down. There’s the perceived brand experience that customers feel when something goes on mark down, so as long as you have new products coming in, your core clientele or those who are brand loyal are really only going to be interested in the new stuff. Your brand loyal customers really don’t care what’s on sale, they’re probably just waiting for the new products because they’ve already seen the mark down products.
So as a luxury brand owner if I have the ability to buy back inventory, I would do that and funnel it through my own channels. I’d also say that going through certain off price places like, GuiltGroup, would be a good place to offload some excess inventory. I’m personally not a fan of publishing huge sales online when you’re starting off, because you really need to make sure if you are putting things on sale you also have new inventory so it doesn’t signal to your clientele that you’re going out of business.
Q5: So I know a big trend among high end outlets is offering outlet exclusives that look slightly different from the retail originals. Can you further elaborate on this practice?
SM: So companies like Gucci do make outlet exclusives, as do other brands like Prada. Looking into the outlet arena was my territory at the time and I noticed some of Prada’s outlet exclusives were manufactured in China, and what’s actually terrifying is that customers were going into the Prada outlet and walking away thinking they’ve bought a genuine Prada item when in reality it was made in China. There are no laws in place when it comes to this sort of practice, but in reality it’s deceptive to customers who are buying a brand so heavily synonymous with Italy. Other brands, like Bottega Venetta and Gucci, would manufacture their outlet exclusives in their country of origin but would tweak the design or use less expensive materials.
Q6: Got it! Well thank you so much for sharing your exclusive insights on this elusive industry. Do you have any final tips or information you’d like share?
Yea, so this is more for people who are looking to launch a high end brand, my suggestion is to really figure out who your customer is, do your competitive matrix and your market research. Test your products by holding private events, have small group cocktail parties where you can start to build your brand and figure out what’s going to work. In luxury, as you start to define your brand and begin to put things out there, remember that you can only launch once, so it’s really important you nail it. You’ve got to know what the brand is going to be known for, what you’re going to be known for, the brand identity and the overall image. All of this is really important.
Please contact Syama Meagher at Scaling Retail to learn more on how her decade worth of experience can help you grow your budding luxury brand into a successful venture. And as always, don’t forget to stay connected on: Instagram, Twitter, Facebook and LinkedIn!