Abercrombie, Victoria's Secret Are Right to Discount

Limited Brands‘ Victoria’s Secret chain, Abercrombie & Fitch and other apparel retailers are lowering prices on some of their goods as consumers continue to feel financial strain. Though some industry observers point to concerns that lower prices could cheapen their brands, these companies are making the right decision in efforts to connect with a hesitant shopper and correct severely lagging sales.

Victoria’s Secret will introduce a new bra next month priced at $29.50, and it’s Pink line will start selling two bras for $32. The future may bring more deals. Said Sharen Turney, chief executive officer of the chain, during the company’s second-quarter earnings call: “We are obviously prepared if the economy turns on us that we will engage in more promotion.”

Abercrombie, a retailer with a history of never slashing prices, is starting to go in the other direction. The company is making the move, despite the fact that executives still sound hesitant. “We know price is a component, but it’s not going to be the component that drives our model,” said Eric Cerny, director of investor relations, in a Los Angeles Times interview.

Pricing might not end up driving the business model of either company, but both need to embrace the strategy in efforts to help sales. Same-store sales at Victoria’s Secret fell 12 percent during its most recent quarter. Abercrombie’s plunged 30 percent on a net loss of $26.7 million.

It’s understandable that these chains wouldn’t want to slash prices so drastically that margins are strongly damaged. And one analyst told the Wall Street Journal that in the case of Abercrombie, it’s important to not appear as if the company is conducting a “fire sale.”

But we’re in an age now when $60 sweat pants seem a lot less practical. Right now the best performers in apparel are the discount chains TJX Cos. and Ross Stores, both of which are turning in impressive numbers, most likely due to their low prices.

When (or if) the consumer finds more dollars to spend, apparel chains can adjust their prices back up accordingly. But the key to success in this environment is the perception of a good deal, especially in an environment where cheap is the new cool.