NextGen currently tracks the pricing on over 5,000 women’s brands in order to keep its suggested resale prices in tune with the retail prices in women’s fashion. This involves the timely identification and valuation of brands—new, old, rising, fading, fallen; and distinguishing the many labels introduced by designers to appeal to different markets. It’s a demanding task in normal times, and especially now as the rate of brand/price change is as high as we’ve seen.
The significant change we’re seeing in women’s fashion pricing, specifically the growth in the designer brands at the top, and discount brands at the bottom, reflects the broader shift in income distribution. To quote Schwartz in his recent New York Times article (2/2/14) entitled The Middle Class Is Steadily Eroding. Just Ask the Business World.
“As politicians and pundits in Washington continue to spar over whether economic inequality is in fact deepening, in corporate America there really is no debate at all. The post-recession reality is that the customer base for businesses that appeal to the middle class is shrinking as the top tier pulls even further away.
The top 5 percent of earners accounted for almost 40 percent of personal consumption expenditures in 2012, up from 27 percent in 1992. Largely driven by this increase, consumption among the top 20 percent grew to more than 60 percent over the same period.”
John Graubard’s graphic observation in the same article sums it up “In a few years the consumer choice will be Neiman Marcus or WalMart.”
I know it seems that we talk a lot about pricing, but that is because it one of the most important parts of growing a successful consignment business. Next to continuously gathering great consignors, it is probably the most important component of your business.
Your pricing determines if your can pay rent or staff or stay in business. How you price sends a message to your shoppers and your consignors.
If you price too low, you lose money and can give the impression that your merchandise is somehow not the best, not good quality. Pricing too low leaves you no room to mark down.
Not knowing the value of your merchandise and pricing it too low can be disasterous. You quickly sell out of the good items and your consignors will not be happy with their share.
On the other hand, if you price too high, your things don’t sell and you are forced to mark them down. If this is your pattern, you are actually training your shoppers to wait for your markdowns/sales.
So, what are we to do? You can spend all day, every day researching and checking prices and in your spare time run your business, but we all know that that won’t work.
What is needed is something that provides a balanced, real world and reliable approach to pricing. The good news is that there is such a system. It’s called the NextGen Women’s Fashion Pricing System.
With the NextGen Women’s Fashion Pricing System, you can be confident that you are pricing at good prices–the right prices, and you are pricing consistantly.
This sends the right message, that you know what you are doing. Your consignors, shoppers, staff and your bottom line will be very happy.
Talk to us. Let us help you. You’ll sleep better.
The prices charged by stores using NextGen’s pricing system vary significantly. Prices for the same brand and category of apparel, accessory or footwear at some stores can be as much as 2.5 times that of others. The primary reasons: 1) demographics or more specifically client disposable income, and 2) competition. Shops serving well-heeled customers with limited competition from large discounters and resale shops are able to charge higher prices than those located in lesser income markets with nearby competition.
The challenge is finding the right level. While pegging prices to a store’s historic sale prices by brand and category makes for consistency, there is no way of knowing whether these prices could and should be higher or lower, i.e. how much is being left on the table.
Herein lies the NextGen advantage. NextGen’s prices are informed by the pricing/sales experience of stores in high to low demographic and high to low competitive markets across North America. In the case of new stores with no sales history of their own, NextGen sets prices based on the new store’s market demographics and competition. In the case of stores with a pricing/sales history, NextGen analyzes their pricing/sales history relative to the histories of stores in like markets in order to identify pricing potentials. Owners generally opt to move to these prices immediately though sometimes gradually so as not to concern longstanding customers.
Many NextGen clients are beginning to buy items outright, either selectively or completely. Perhaps this is in responseto an increasing number of women’s resale “Buy Outright” stores or in an effort to improve sales margins.
The most common question about buying outright is, “shouldn’t we lower our prices to be sure they sell?” …and, by extension, shouldn’t NextGen have a set of lower price points for stores buying outright?
The answer to both is, NO!
It all has to do with your “Pay Price” which is how much you pay to have an item for sale.
- The Pay Price for most consignment stores is 40-60% of the selling price paid to their consignors.
- The Pay Price for most buy outright is 20-40% of the selling price paid to the seller of the item.
The lower Pay Price and higher sales margin of buying outright provides for any loss associated with items that don’t sell or sell for less than what the store originally paid for them.
It’s the buying or Pay Price not the selling price that needs to be reduced when buying outright. While the temptation is to lower the selling price to gain the sale, the right strategy is to be more selective in what you choose to buy. Bottom-line, the right price for an item depends on the market for it, not how it was acquired.
Takeaway Tip: Many owners moving from consignment to buying outright often start with selected consignors, customers with items likely to sell within the consignment period.
Note: NextGen Pricing systems are always calibrated to market, variously based on sales history, demographics, competitive landscape and strategy.
The NextGen Pricing System suggests the best price for an item that can be expected to sell within 75 days. Initially, NextGen obtained these data from a limited number of stores around the country. But in the last 2 years, the data base has grown to include stores in most states and provinces in North America. As most of these stores have been in operation for years, their addition to the data base enables Nextgen to better examine pricing strategies relating to area income levels and competition.
What have we learned? Far more stores under-price than over-price1
Why do stores tend to under-price? The fear that higher prices will turn away buyers
Underlying this fear is the assumption that buyer decisions are based on price more than value. This is to say that buyer decisions are driven more by item-specific price ceilings, i.e., “I would never pay more than ten dollars for a pair of sneakers” than on Value, i.e., I would never pay more than $10 for a pair of Converse” sneakers.” While the former mentality may be common among thrift shop customers, our analysis clearly demonstrates that it is the “Value” mindset that is prevalent in better consignment and resale shops, not the “Price” mindset. Simply put: Customers pay more for better brands than lesser brands.
Give your customers credit. They are value conscious and knowledgeable thanks to Google and other internet shopping and price-comparison sites. Always accessible at the press of a button on their smart phone.
What’s to be gained by raising under-prices? Customers, Sales and Profits
Right pricing is not what the market will bear, but what the market will embrace while maintaining timely sales. Dollar sales will increase. Margins—bottom-line profits—will likewise increase. Item sales may not, but should not decline.
Raising the price of under-priced items allows a corresponding increase in the amounts paid for these items. To get better brands, we must pay for them. The more we pay, the more we get.
Right pricing is Fair pricing, meaning fair to seller/consignor as well as buyer. In the end, it’s a win-win-win. The sellers earns more, we owners earn more, and buyers have access to valued items they would not otherwise see.
The Good news? While under-prices cannot be abruptly changed for fear of alienating longstanding customers, prices can be nudged up (optimized) gradually and imperceptibly over a number of years. Clients use the NextGen Pricing system to manage these changes.
1 Certainly, these data could be skewed. Perhaps the over-pricers are gone, having priced themselves out of business. Or just maybe we’re missing the under-pricers who didn’t have sufficient margins to cover their costs of doing business. Let’s reasonably assume a bit of both.