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Last days of discount

Industry looks to reverse the consumer sales-price mentality.

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Throughout the next month, SNEWS will recap its coverage of Outdoor Retailer Winter Market 2014 with select stories from the O.R. Daily we published at the show Jan. 21 – 25. It’s an opportunity for you to catch up on stories you might have missed in O.R.D., and for us to update and upload the articles to our searchable archives.

This is an intervention for outdoor industry — brands, retailers and consumers.

It’s time to step away from the discount, rip off those markdown stickers and hold firm on price. Customers hooked on markdowns aren’t going to change their mindset until brands and retailers take action. Sure, brands can make a $200 jacket and mark it up to $400 just so retailers can mark it back down to $200 to make it seem like an amazing deal. But does that really make the sale when every other price in the store is pumped and dumped, too? Seventy percent off has become the new 50 percent off, which not-too-long-ago was the new 20 percent off. These type of discounts are no stranger to the fashion industry, but is that really where the outdoor market wants to go?

Making more innovative products is just one part of the solution to retrain bargain-craving customers. The ideal solution involves three things: becoming leaner in terms of manufacturing and ordering; just saying no to — or at least limiting — discounting; and creating more innovative products that consumers perceive they need.

This process will have growing pains, but it’ll be for the industry’s future health.

“There will be some lost sales for sure,” said Roanne Miller, president of Grassroots Outdoor Alliance, “but in the big picture of things, it’s more advantageous for us to get supply and demand at a reasonable amount.”

But the fact remains that the lowest price is still important to this customer and it’s become more important in recent years.

Leisure Trends’ “All I Want For … America’s Holiday Wish List 2013” survey found 24 percent of customers said sales and rollbacks would drive them into stores. That figure has inched up from 21 percent in 2011, and though not a huge increase, it’s a sign of a rising trend, said Scott Jaeger, senior retail analyst at Leisure Trends.

Lean machine
Few end up winning with discounting, and at some point, even the consumer will tire of the game.

“It hurts the industry because in every avenue, margin gets lost,” explained Mike Wallenfels of Timbuk2. “Profitability gets lost. The customer gets rewarded with a better price but the retailer providing service has less margin and brands have to sell at lower margin to help retailers.”

But overall, it’s the manufacturers that lose: “We’re sacrificing profitability and stability of the companies themselves in order to get transactions and get revenue,” Wallenfels said.

The solution: Tighten up inventories. It’s OK to let some products run out sometimes to up the demand.

Horny Toad and others call it the “scarcity model,” which the brand employed to rein in discounting and clean up excess inventory, said Brian Thompson, global director of sales and marketing for the company. “We have made the decision that it is better to sell out of a style than to have surplus inventory that is marked down later in the cycle,” Thompson said. “As such, we are probably leaving some money on the table in the form of not maximizing upside,” he added, “but those are theoretical dollars balanced against the hard dollar savings from less cash tied up in inventory and fewer markdowns eroding margins and brand value.”

Overproduction is a greed thing in the eyes of Tracy Mayer, owner of retailer Backcountry North in Traverse City, Mich. “How greedy do you need to be?” she posed. “When you have privately held companies that have lofty goals like wanting to make a billion [dollars] a year, they mess up their own marketplace.”

Reducing production isn’t without its challenges, Wallenfels said.

“The business equation everybody is wrestling with is determining what’s the appropriate ratio,” he said. But Thompson said it just takes more strategic planning.

“The secret to this model is to be highly effective with our inventory planning models,” Thompson said. “We put much more time and energy into the process today given we can’t hide our mistakes behind overly deep inventory.”

Just say ‘no’ — or at least ‘when’
Zeal Optics changed owners in 2011, which led to a rebranding and overhaul. Part of that revamp, said Director of Marketing Joe Prebich, was to say no to discounting while providing alternatives to retailers having trouble with sell-through.

This process wasn’t without its trials. The company broke ties with big accounts, but it was worth it in the long run, officials said. “In order to keep our product with a high perception of value, that the product actually has, we need to keep it at [suggested retail] price,” Prebich said. When Zeal’s products aren’t moving, the company will provide merchandising solutions, offer to swap them out with different products or provide sales training.

The solution: Say no to markdowns or design minimum advertised pricing (MAP) policies to have a hand in suggesting when retailers can have deals and how often.

There are a lot of accusations in the industry about MAP policies and who’s violating them without punishment, so updating policies to be more relevant to the wide array of retailers today is in order, all the while making sure not to break any price-fixing rules. And while the Internet is a large bane to retail price, it also can be used to quickly find violators.

Timbuk2 recently revamped its MAP policies and lost a few accounts enforcing them, but Wallenfels said it’s been a good decision for the company. Retailers like Mayer often determine which vendors get their business based on MAP policy enforcement. “You have to have a MAP policy with enforcements,” she said, “and the enforcements have to have teeth.”

Wallenfels said it’s worth the investment, which comes in making sure MAP policies comply with the Sherman Act, the legislation that made it illegal for companies to enforce fixed prices.

Good timing
If there ever were a time to firm up prices, now might be it. With the Federal Reserve beginning to tighten the reigns on cheap money, inflation will start creeping back in.

Active consumers want to spend more money on products they need to feed their passion, according to information gathered from Leisure Trends’ “All I Want For … America’s Holiday Wish List 2013” survey.

In fact, they indicated that they had planned to spend on average of $400 more than the average non-active consumer during this past holiday season on gear and sporting products.

“If consumers want a product they may wait for a discount, but their need for a product is really going to override frustration of higher retail prices,” Leisure Trends’ Jaeger said. “They are going to spend on their passion.”

The solution: Provide innovative products that customers will need — or think they need — to do the activities they’re passionate about. In other words, don’t innovate for the sake of innovation, innovate toward a real, needed solution. And there’s no reason to punish thrifty consumers — brands can use the good/better/best model to provide lower-priced, basic items that are affordable, even without a markdown.

“Brands need to continue to evolve,” said Erik Fialho, chief strategy officer for the flash-sale site LeftLane Sports. “They need to continue to evolve what they design and create to match up to what the consumers want.”

Wes Allen of Sunlight Sports in Cody, Wyo., said retail buyers also need to be willing to take risks to purchase truly innovative products when they do come out. “I’ve worked on the other side and sat in those product brief meetings when [designers] are very excited about a product, but said they wouldn’t be able to get it past a buyer.”

Dave Polivy, owner of Tahoe Mountain Sports, said avalanche air bags and fashion boots are two categories that are rarely sold at bargain prices — two categories that consumers need or perceive they need.

In the end, it’s economics 101 with supply and demand, said Ron Parham, senior director of investor relations and corporate communications at Columbia Sportswear.

“This gets back to managing supply to try to match demand so consumers feel like, ‘If I don’t get mine now, I won’t get mine at all,’” Parham said.

We all know what got us here: The economy, the incredibly awesome winter of 2009/2010 that led to over ordering and excess goods the following terrible winter and the general desire by consumers to pay less and get more.

With the snow falling again, and the economy improving, it’s time to turn it around.

–Ana Trujillo