8 Key Tactics to Encourage Consumer Spending

The meltdown of the economy last fall threw luxury retailers such as Neiman Marcus and Saks Fifth Avenue into a panicked frenzy. Stuck with high priced inventory, both stores responded by drastically slashing prices. New merchandise was automatically marked down 40% BEFORE it even hit the floor. In an effort to boost traffic during the holiday selling season, Saks Fifth Avenue’s New York store marked every designer bag to $200. And in January, Saks discounted most of its merchandise by as much as 90%. Women were boasting of securing $1,200 items for as little as $200.

U.S. retailers have long trained its shoppers to buy on sale. Now, not only are U.S. shoppers expecting a sale, they are expecting deep deep discounts. And the trend continues. Saks and Bloomingdales offer frequent 20%-25% “Friends & Family” discounts for their online businesses. And I was recently in Saks Fifth Avenue and asked for and was given a 40% discount off a full price Missoni dress. So what’s a retailer to do?

Stop the Madness. First and foremost, we need to stop the discounting immediately before it becomes ingrained into U.S. shopping behavior. We need to believe that what is happening now is an epiphany and not a permanent state. Otherwise, we will ever get out of the “doom loop.”


Most economists agree that we are out of the recession and that by mid-next year we should see improved employment figures and increased consumer confidence and spending. Encouragingly, we can see slight signs of a strengthening economy with retailers posting positive comp growth in September and October.

The bottom is more important than the top. Most companies are focused on growing revenues. However, we need to remember that it’s what we take home that matters. Those who live to fight another day are the ones who have money.

How “low” can you go and still make money? The days of buying an $800 skirt are over and will be over even after the recession has passed. Success will be determined on providing the look and quality of the $800 skirt for half the price. One of the reasons why Target apparel is suffering is because Wal-Mart offers comparable merchandise at substantially lower prices.

“Born in the U.S.A” is back in Style. In the 80s, manufacturers began moving production from the U.S. to overseas. China’s robust growth is due to its export-based economy. Interestingly, we are seeing U.S. companies moving their production back to the U.S. given the increasing Chinese labor costs. In December 2008, Kirstie Kelly Disney Fairy Tale Weddings moved the production of its bridesmaid’s dresses from its long-standing Chinese factory to a facility in Decaturville, Tenn. And American Apparel has consistently produced all of its goods in its Los Angeles factory, eschewing offshore production.

Make Your In-Store Experience an Oasis. Consumers are desperately seeking refuge from the economic storm. Glen Senk, CEO of Urban Outfitters, Inc. believes that the ambiance of a store is as important in attracting customers as the product being sold.  He said that while most retailers try to simplify their store set-ups and make all their stores look the same, he believes that complexity is a good thing. As a result, no two Anthropologie or Urban Outfitters stores are alike.

Buckle, another success story, which just posted its 21st consecutive month of double-digit same- store sales gains, defines its in-store experience by providing superior personal service. Their success at executing an enjoyable shopping experience is due to employee longevity. Notably, its two Vice Presidents of Sales have a combined 60 years of experience with Buckle. Their 24 district managers share an average of 20 years Buckle experience with their teams and approximately half the store managers have managed a Buckle store for at least three years.

Consider offering your best customers small but unique gifts and/or tickets to events of their choice. Louis Vuitton does a particularly nice job with the gifts. Last year’s Holiday Gift to their best customers was a snow globe featuring “LV monogrammed snow” circulating around their classic steamer trunk. And Hermes excels at offering its valued customers tickets to exclusive special events in their areas of interest.

Commit to provide newness and excitement at a great price. This gives your customers a reason to visit you. The “off the runway into your home” business model has been tremendously successful for H&M and Zara. H&M’s capsule collections with designers exemplify this strategy. Its collections with Karl Lagerfeld, Stella McCartney and wedding dresses from Victor & Rolf sold out in one day. Its most recent collaboration with Matthew Williamson resulted in out-of-stock situations within the first hour at H&M’s Oxford Circus London store.

Zara’s CEO boasted that they their turn time is as little as four weeks from concept to store. Their ability to provide “fast fashion” frequently at great prices gives their customers a reason to visit and shop their stores more often.

When it’s Gone, it’s Gone. Capitalize on the appeal of scarcity. No matter how successful a item is, resist the temptation to repeat. Keep moving forward. Focus on the next “new new thing.”

As retailers and manufacturers, we need to position our products as “Want It” versus “Need it.”  This entails:

  • Providing newness and excitement at great prices
  • Resisting the urge to focus on repeating best sellers, “when it’s gone it’s gone”
  • Insure that our in-store experience provides customers with an oasis from the economic storm
  • As an alternative to discounting, consider offering valued customers unique gifts and/or tickets to special events
  • And keep our eyes on the bottom line so that we are able to live to fight another day


Patricia Pao is CEO of Manhattan-based The Pao Principle, a global business consulting firm that devises and executes strategic growth across a wide range of industries, specializing in the beauty, fashion, retail and luxury goods markets. Pao has over 20 years of experience in the luxury goods, beauty and retail industries. Her client list includes: Elizabeth Arden, Ann Taylor, Urban Outfitters and David’s Bridal.

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