CHICAGO (AP) – The 60 percent off sign at Elan Fur isn’t much different from the others filling the storefronts on Chicago’s Michigan Avenue. But good luck finding a similar deal next door at Apple Inc.
Even as shops vie for customers by offering massive markdowns, shoppers are still lining up to pay top dollar for coveted goods from Apple’s iPods to designer footwear.
The ever-popular Wii gaming console continues to sell out at the list price of $249, Avon cosmetics just boosted prices, Nike is releasing its newest Air Jordan with an astonishing $190 pricetag and designer water can still command as much as $3.99 a bottle.
While almost everything goes on sale eventually, some products remain untouched by discounts, or nearly so, even in this dismal economy. The reasons fall mostly into three categories: old habits die hard, brand loyalty runs deep and the Economics 101 law of supply and demand means the most sought-after brands can command the best prices.
Beyond that, there are some items consumers stubbornly just won’t forgo – sale or not – no matter how hard they’re trying to stretch their budget.
“If you infuse enough values into the product, people will pay full price,” said Candace Corlett, president of the consulting firm WSL Strategic Retail. “There are certain categories … where there are no substitutes accepted. It’s infusing your brand with those things that people then say ‘I have to have the real thing.'”
But even companies with products that have traditionally held their value in tight markets are making some concessions, and the number of items that can charge a premium is dwindling as consumers make complicated and deeply personal choices about how they’ll spend their money.
Beverly Bailey isn’t buying clothes at full price. But the stay-at-home mother from Kenilworth, Ill., will still shell out top dollar for organic milk and fresh produce for her family.
“I’m shopping a lot less and I’m looking for bargains when I shop,” she said. “(But) we have not cut back on those items because we think they’re related to health, and we don’t want to compromise on health.”
Heather Fox, a 42-year-old waitress from Huntsville, Ala., scours stores for sales and clips coupons for food and clothing discounts. But she won’t cut corners when it comes to her Marlboro Lights.
“You’ll find that most smokers won’t switch from the brand they have,” she said after taking a puff.
Morningstar analyst Kim Picciola said customers often justify paying full price by cutting spending in other areas.
“People are making choices, there’s no doubt about it,” Picciola said. “They’re making choices about how they want to spend their discretionary dollars, and in some cases they’re still willing to pay full price for brands they’re loyal to.”
Corlett puts it differently.
“You may drink less Coke, but you’re not giving up Coke,” she said.
In some cases, however, full price is a subjective designation. Wal-Mart’s full price differs from those found at, say, J.C. Penney or Saks. Companies can also opt to drop prices on products instead of promoting a big sale. Luxury handbag maker Coach Inc., for example, said Wednesday it will lower its prices 10 percent to 15 percent while offering more items under $300.
And many manufacturers now set minimum price requirements that keep merchants from marking items down to a bare minimum.
Many retailers tend to resist markdowns because they can threaten a brand’s well-cultivated image and cost companies profits both now and years down the line. That’s why discounts are infrequent at stores like Abercrombie & Fitch and Apple, which this week said its profit climbed 2 percent in the last quarter as shoppers bought a record number of iPods. That helped boost sales 6 percent and helped the chain beat Wall Street forecasts.
Experts said retailers must also be careful not to set a risky precedent that gets shoppers accustomed to huge markdowns, making them less willing to spend on full-price merchandise.
Lori Hanlin, a 45-year-old postal worker from Bridgman, Mich., is a good example. She is so used to getting items on sale that she won’t splurge on much of anything.
“It’s a game,” she said. “Clothes, makeup, anything like that, things for your house. I’ll never pay full price for those.”
And if the sales go away?
“I’ll just quit buying,” she said.
To avoid that pitfall, some retailers provide price breaks to their best customers through other types of programs. Starbucks Corp., for example, gives its rewards cardholders free syrup and milk options for some drinks, unlimited brewed coffee refills and two hours of free Wi-Fi access each day.
“The whole idea of more and more markdowns is not the answer,” said Burton M. Tansky, president and CEO of The Neiman Marcus Group Inc., which offered heavily discounted designer goods during the holiday season.
The chain of upscale department stores is holding smaller, private shopping events for some of its most loyal customers, hoping to promote its full-price goods. Still, Tansky acknowledges it likely will take a “very long time for us to untrain the behavior.”
Despite such efforts, merchants may not have much of a choice about discounts as the recession persists. The International Council of Shopping Centers predicts a drop of more than 5 percent in retail sales for the first half of the year. Unemployment was at a 16-year high of 7.2 percent in December and is expected to keep rising – troubling for Wall Street because consumer spending makes up more than two-thirds of U.S. economic activity.
Spring discounting, which began weeks ago, is getting more aggressive as retailers Bebe Stores Inc. and J. Crew Group Inc. cut prices on new items and competitors Ann Taylor and Banana Republic followed suit. Much of that merchandise was ordered months ago, well before the economic downturn’s effects became pronounced for shoppers.
“I think retailers are going to have a very tough road, and that’s because customers are taking to heart this idea of going green and reducing consumption and making things last longer,” Bailey said. “And so I think that in addition to hoping to pay less, we’re also just buying much less.”
AP Retail Writer Anne D’Innocenzio in New York contributed to this report.