Everyone wants a bargain – especially during uncertain economic climates. Off-price retail has undergone a revolution in recent years, expanding from brick-and-mortar stores to e-commerce. The niche has revitalized itself and attracted a new demographic of value-conscious shoppers.
We spoke to fashion consultant Kenchen Arjandas about the factors that determine the pricing strategies utilized by off-price fashion retailers. Kenchen has spent almost two decades working in the off-price fashion segment, specializing in fabric importing and sourcing, enabling retailers to offer high-quality garments at competitive price points.
1. Understanding Cost Structure
Before a retailer can set its pricing strategy, it needs to understand its cost structure. Kenchen highlights that this isn't just about the cost of merchandise - it includes every expense the business incurs, including shipping and overhead expenses.
Understanding the cost structure enables off-price fashion retailers to set a baseline for its minimum acceptable price, including the lowest the item can go to during a sale or additional discount offer.
Off-price retailers depend on garments and accessories that are over-produced or excess stock but still attractive to consumers. They must negotiate a purchase price for this merchandise that is competitive and allows for it to be sold at a discount from the original retail price while still making a profit margin.
2. Market Research
Kenchen points out that market research is what makes or breaks pricing strategies. It's an indispensable resource for retailers, allowing them to stay ahead of consumer trends and identify changes in consumer behavior to react accordingly. Retailers might outsource their market research or keep it in-house with their finance department.
3. Brand Value
What makes off-price fashion appealing to consumers is the discounts they can score. We've all seen social media videos of influencers getting designer brands for next to nothing at off-price fashion stores. The target demographic of off-price fashion stores has expensive tastes but a budget that prevents them from shopping directly from designer brands.
Brand value works both ways. Luxury labels will still require a higher price tag, even within off-price retailers, while lesser-known brands can be more competitively priced. Pricing mid-level brands more aggressively can get footfall into your store and build a consistent customer base.
4. Seasonal Considerations
Fashion is seasonal, and off-price brands can often offer their best discounts at the opposite season from the collection. For example, they can often buy spring/summer merchandise at the best price in autumn and winter.
Kenchen advises that off-price retailers may alter their pricing strategy during peak seasons and sales time, such as Black Friday. Off-price retailers have to be reactive and align their pricing strategy with consumer demand, tracking the ebb and flow of the seasons and peak shopping times.
5. Discount Depth and Frequency
Off-price retailers need to strike a delicate balancing act. While steep discounts can attract footfall and traffic, they quickly eat into profit margins. Kenchen suggests utilizing clearance sales and occasional promotions to encourage returning customers, swift inventory turnover while maintaining profitability.
6. Customer Perception
Customer perception is crucial to how off-price fashion retailers can mark themselves. Pricing strategies that focus on lower price points and steep discounts can leave consumers questioning the authenticity and quality of merchandise.
Off-priced retailers need to be perceived as offering value without the deals looking 'too good to be true'. Kenchen draws on her experience upcycling fabrics as an option for off-priced retailers looking to build a sustainability message and benefit from a possible lucrative profit margin.
Kenchen suggests that brands should look for ways to pivot their image to meet consumer demands. She's worked extensively with upcycling fabrics and promoting the sustainability of the niche to attract a younger demographic. Gen Z and Millennials see off-priced retailers as being a way to get their hands on fashion and accessories at a more affordable price while also helping the planet.
7. Data Analytics
The off-price retail segment is expected to grow five times faster than its full-price counterpart between 2025 and 2030. Kenchen points to the power of data analytics tools to provide valuable insights into customer behavior, enabling off-price retailers to update their pricing strategies in real time.
Kenchen describes pricing strategies for off-priced retailers as being a "delicate dance" between attractive prices to get consumers through the door and maintain profitability. Retailers who understand the industry's nuances and utilize data-driven pricing strategies can stay agile as the market goes through a turbulent growth period.
Off-price retailers can optimize their pricing strategy and maximize growth potential by monitoring market trends, establishing brand values, and considering cost structures. The next five years offer a chance for off-price retailers to drastically expand their consumer base and enter new markets.
