How Long Can Abercrombie and Fitch Buck the Retail Trend?

One company, abercrombie and fitch (ANF), believes so and has chosen to stay away from running promotions in addition to their annual clearance in hopes of maintaining its brand image and, more importantly, pricing power.

Six months ago, I wrote an article highlighting the dangers of seeing a retailer running sales called, “Discounts - Good or Bad?” Little did I know that in the six months following the article, we’d see almost all consumer discretionary retailers discounting more aggressively than we’ve seen at any time in the last decade.hollister clothing
Just to summarize the aforementioned article, promotional markdowns are typically used in an attempt to entice a higher volume of purchases to juice declining revenues and clear inventory. The main pitfalls to such a strategy include:
1. Increased volumes at lower margins are not translating into higher revenues. Few buyers will buy a poor product even at a discounted price.
2. Reliance on discounting is often a result of structural weakness in a company’s merchandising decisions.
3. The repeated use of voluntary discounts runs the risk of turning into a permanent loss of pricing power through what I call, “the sale spiral.” Customers become accustomed to bargain basement prices and lower their reservation price for the company’s products altogether.Ruehl No.925
In my previous article, I assumed discounting was the direct result of difficulty enticing customers to buy product. But, what about discounting in the face of a recession and overall tightening of wallets? If the industry as a whole begins discounting, do the same principles of loss of pricing power, profitability, and brand image apply?