Discounting has become somewhat of the norm in the fashion industry today, with clearance culture emerging as the solution to excess stock for many retailers and brands. But could this practice be doing more harm than good? This background piece looks at sale and discounting practices.
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1. When is it sale?
As always, we start at the beginning. There is not always a sale on - although it may feel like it.
During which months are clothes usually on sale?
“The Global North”, including the United States, United Kingdom and most of Europe, pretty much follows the same.
In the United States, there is no overarching law regulating pricing markup and charging more than retail price. Every state has its own laws, regulations, and guidelines regarding pricing. Discounts, sales, and other types of promotional pricing are governed by the Federal Trade Commission (FTC) and regulations at an individual state level. The regulations set forth by the FTC are outlined in what is popularly referred to as "The Guides," formally known as the Guides Against Deceptive Pricing. These guidelines are designed to shield consumers from misleading pricing tactics, mandating that companies must present products at a genuine price, maintain that price for a fair duration, and operate with integrity prior to reducing prices to boost sales
This is the sale calendar that most fashion brands and retailers follow:
Summer sale: starting in June to July/August
Winter sale: starting in December to January/February
Mid-season sale: Sprig sale from March to April
Mid-season sale: Fall sale from September to October
Data from the Central Bureau of Statistics in the Netherlands shows that the low season for clothing prices occurs in January and July/August (at the end of the winter and summer sales, respectively), and the high season, when prices are at their highest, is in May and November. This applies to men's, women's, shoes, and baby clothing alike,” explains Henk Hofstede, Sector Banker Retail at Dutch bank ABN Amro to FashionUnited.nl.
Explanation
The fashion industry operates via seasonal collections. Every new season equals new designs and new fashion. "Old" collections are put on clearance or discounted to make room for new collections. In the past, brands and retailers traditionally introduced two collections a year, but now companies drop four or more, with some companies continually introducing new collections.
There will always be products that sell less well than others throughout the selling season. These products are usually referred to as slow movers. These tend to be the products that end up in the mid-season sale.
Consider alternatives such as a Black Friday, Cyber Monday discount extravaganza, or standalone clearance or marketing campaigns like a flash sale.
Traditionally organized companies in the fashion industry operate their business well in advance. Most designers and clothing brands start developing their collections more than a year ahead of time. Due to everything being initiated and settled so early on, the fashion industry faces significant uncertainties and risks. One of the challenges in the fashion industry - and perhaps the greatest - is that the sector must predict what consumers will want to buy and wear in the future. Matthijs Crietee, secretary of the International Apparel Federation, put it this way in a 2021 interview with the Dutch newspaper 'De Correspondent': "The sector is essentially one big gamble because who knows what people will want to wear in six months or a year?"
"But planning volumes and trends is difficult," states Henk Hofstede, Sector Banker Retail at Dutch bank ABN Amro. "Because you don't yet know what the circumstances will be. Those who have to plan far ahead can't always adequately respond. Who would have thought that after the Coronavirus crisis, we would be dealing with such a significant drop in purchasing power and, at the same time, rising procurement costs due to the war in Ukraine?" he illustrates.
"Despite all the knowledge and expertise in the business, capitalizing on the right moment is challenging. Because you also have to deal with increasingly unpredictable weather conditions. Two and half years ago, we barely had a winter. Or consider the summer of 2023, first a lot of rain, then warm weather, and later rain again."
Background: Weather does influence consumer purchasing decisions when it comes to apparel.
Consumers nowadays mostly buy what they need at the moment, as retailers John and Marion Mulder from Mulder Mode previously told FashionUnited, a sentiment echoed by Hofstede. You buy a sweater or coat when it's cold, a breezy dress or swimwear when it's thirty degrees. And so, there already lies a challenge for retailers because the fashion seasons run ahead of 'real life'. In other words, a large part of the collections are produced and arrive in stores before consumers are ready and willing to buy them.
“If you, as a retailer, don't have the right assortment, at the right time, or the right quantity - whether your offering is too large or too small - then you can be quite off the mark,” asserts Hofstede. By this, the expert means that: sales may not go well.
But clothing still has to be sold.
This brings us to the reason for frequent discounting within the fashion sector.
2. How and why discounts are used in the fashion industry
Discounts are used to stimulate sales and/or to get rid of remaining stock or surplus stock.
"If that retailer ends up with excess stock after a less successful selling period, then price becomes the weapon that is often resorted to." Because clothing needs to be converted into cash, explains Hofstede. Retailers use the money they earn in the current season to pay for the next fashion season (these items have already been purchased and are en route to the stores) and for the purchase of the same fashion season a year later. For example, the revenues from autumn/winter 2024, are used to pay for the spring/summer 2025 collection deliveries, and based off of that the orders for the autumn/winter 2025 collection are written..
Having inventory also costs money. On one hand, there are storage costs, and on the other, there is the loss in value. Unsold clothing items in stock quickly decrease in value, as products go 'out' of fashion and eventually become unsellable 'because the trend, design, or color is past its prime.'
Discounts are also used to attract or retain customers.
Fashion companies and retailers do not want to lose customers to competitors like retail chains on the high street or larger online stores.
The fashion industry is highly competitive. "Fast fashion brands such as H&M, Zara, and Shein make it very easy for consumers to find something that is currently ‘in fashion’ or suits the (climatological, editor's note) season," explains Hofstede. These fast fashion players can, unlike traditionally organized companies and retailers, act swiftly and, with their flexible supply chains, are capable of getting a new garment from the drawing board to the store shelves within a few weeks. "In the case of Shein, this can be as quick as within ten days. This ultra-fast fashion retailer can, therefore, respond extremely quickly to trends, increase production with rising demand, and adjust collections." Moreover, fast fashion is usually very affordable, 'and the price is still the most important factor for most consumers when making a purchase,' according to Hofstede.
At the same time, the topic of sustainability is becoming more important, as Hofstede also mentions (more on this in the following box, in paragraph 4). More consumers are aware of the impact their consumption behavior has and expect companies to make an effort when it comes to sustainability and play an active role in it. For retail and fashion stores, this means transitioning to an open organization with full transparency, where consumers gain insight into organizational policies and the production process.
The playing field has not only become more challenging for retailers because of (ultra)fast fashion companies, explains Hofstede. The advent of 'smartphones combined with the internet' has also changed matters. "The clothing offer got bigger, fashion became more transparent and accessible. Waiting time at the station or travel time with public transport has become shopping time through our mobile phones," says Hofstede. "And the price-conscious consumer can find out exactly where a product is cheapest with just a few clicks. A significant difference from twenty years ago."
The rise of the internet has also increased promotional pressure in the sector. Online giants like Zalando or Amazon can easily engage in price slashing compared to independent retailers. "The big players don't rely on just one product group (such as clothing, editor's note) and can sometimes attract new customers to their platform by offering deals on certain product groups, and then make their revenue from other products. They literally have more power. And buying power, by the way, which means that their selling prices can generally be a bit lower," explains the expert. "Independent fashion stores suffer more from rising costs such as rent and staff, and they really need their margin to afford this."
Gross profit margin, gross margin, or simply margin, is the percentage of profit a company makes on the sale of products.
Markdowns put pressure on the results and margins of retailers. "I think many people do not realize that when I give a 30 percent discount, I'm actually sacrificing my own income," said Dutch store owner Marion Mulder in a previous interview with FashionUnited.
Moreover, consumers have also become accustomed to low prices, points out Hofstede. It's a spiral that's difficult to escape from.
"Many consumers eventually will come to expect discounts from you as a retailer. Many retailers feel the dilemma that they can't be too expensive and therefore have to have sales," says Hofstede. "Especially retailers with little differentiation. If your products aren't distinctive enough, then you're inclined to clear excess inventory by offering discounts or clearance. Those liquid assets are, after all, desperately needed for new purchases. I think many retailers stay in the rat race for these reasons."
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Sale - Discount - ClearanceCredits: Unsplash
4. Yet, not everyone in fashion participates in endless discounting
Dutch fashion designer Joline Jolink said farewell to sales in 2016. She stated at the time that sales no longer served a purpose. Joline Jolink sells her women's wear brand directly to consumers through a successful online store and her own store in Rotterdam. "Our prices are fair all year round. Thanks to precise production quantities and an original new-arrival rhythm, there's never any surplus, and sales have simply become unnecessary,” said Jolink at the time.
Hofstede provides two more examples of brands that deal with sales more consciously. "The Dutch brand Mr Marvis offers solid, timeless, and relatively distinctive products with a variety of comfortable pants, polos, and shirts and does not do sales. The jeans brand Mud Jeans doesn't either. They say we offer a good, sustainable pair of jeans, a timeless model of high quality, and that's the price, even six months from now."
“It is often the more sustainable brands with a unique and timeless range and a certain vision or purpose that refrain from sales,” explains Hofstede. “They have loyal customers who care about the product's story, the price-quality ratio, and the sustainability efforts of the brand.
Hofstede: “Efforts in the areas of fair labor conditions, design, sustainable raw materials, and production.”
If you're in that niche, price isn't the most important thing,” he explains. “Do you have to compete with the fashion giants of the world that sell almost the exact same thing? Then it becomes more difficult.”
“That's also my tip for retailers,” continues Hofstede. Ask yourself and your management team: what makes us stand out? What makes us so unique that we justify our existence and that customers, with all the options available, take the effort to buy something from us, either physically in a store or online?” According to him, posing the question is easier than answering it. “But it's essentially what it all revolves around. If you're doing the same as your competitor, then often only one thing remains distinctive, and that is the price. And you're never going to win on that.”
How retailers can differentiate themselves, according to Hofstede;
1. "With the best people, who provide the best service and advice"
2. The assortment: "Is it unique, of high quality, timeless, are you different from the rest, and do you tell your own story?"
3. With the in-store experience
4. Socially responsible or sustainable business practices. “More consumers, especially Generation Z, want to shop 'consciously.' Like: if I buy something, it has to be good, fair, and well-made, with as little impact on the planet and people as possible,” he explains. “So, if you can build a purpose and/or a well-substantiated story around that which strengthens your brand, then that is what makes you different from others.”
He adds: “Also choose the right channels where your (potential) customers are and use influencers to convey your message. A channel like TikTok, for example, is suitable for attracting new young customers. There you can very well tell a story about why you are the best, the funniest, the nicest or most socially responsible.”
A store image of the Mr Marvis store in Antwerp. Credits: Property of Mr Marvis
Campaign image Mud Jeans. Credits: Property of Mud Jeans
Sources:
- Interview with Henk Hofstede, Sector Banker Retail at ABN AMRO, September 14, 2023
- The FashionUnited archive and specifically sale articles by journalists Anne Buis, Esmerij van Loon and Don-Alvin Adegeest.
- The Correspondent article 'Fast fashion is everyone's favorite scapegoat – but that's not always justified', by Emy Demkes, from November 2021.
- Interview with Marion and John Mulder, owners of women's and men's fashion store Mulder Mode, November 30, 2022, in Waddinxveen.
- Previously published background articles.
Sale at H&M and Zara in France. Credits: Credit: ERIC BERACASSAT / Hans Lucas / Hans Lucas from AFP
