Fashion house, Ralph Lauren posted a better-than-expected earnings report Tuesday. Net income increased to $109 million this quarter and shares in the company have risen 31 percent since the beginning of the year. The high-end apparel maker — known for the iconic Polo shirt — cut back on discounts and focused on selling more products at full price. It seems that when it comes to luxury goods, exclusivity is key to business growth.
“Having your products be more coveted is often something that can drive higher earnings,” said Sucharita Kodali, a retail analyst with Forrester Research. "That's what makes the luxury sector unique."
Ralph Lauren is not alone in slowing down the availability of cut-cost stock. Burberry burned $38 million of unsold beauty products and clothing in the last year in order to protect its attraction to high-end customers. "If everybody has access to a product or a brand it doesn't really make it that desirable anymore," said Jeff Galak, a marketing professor at Carnegie Mellon University.
Remaining exclusive is not so easy for mid-level luxury brands like Ralph Lauren. In the wake of the recession, consumers cut back on high-end goods, but companies continued to make expensive products that ended up in discount stores. “People weren't paying full price for luxury anymore,” said consumer psychologist Kit Yarrow, "and this led to over saturation." And along with it, fewer high-end shoppers.
As more mid-level brands pull back from discounts, Jennie Vry Liu from the Yale Center for Customer Insights sees a challenge: Changing shoppers' attitudes and "getting back that mystique and desirability that they [customers] once had for the brand.”
The middle is a hard place to be, customers either want to spend a lot, or a little.
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