Retailers Bet on the Affluent Consumer by Ditching Discounts

A notable shift is occurring among a select group of apparel retailers, including prominent names like Levi’s and Aritzia. These companies are increasingly introducing products at their full price points, a strategic move designed to gauge the spending power of wealthier consumers, even amidst the backdrop of tariffs and a softening labor market. So far, this approach appears to be yielding positive results, challenging conventional retail wisdom.

Levi Strauss, for instance, reported no discernible slowdown in demand after implementing price increases on some of its products in July. Harmit Singh, Levi's chief financial officer, highlighted at the Goldman Sachs Global Retailing Conference that the brand is pursuing a "full-court press" to sell more items at full price than in previous years. He noted the resilience of their core consumer base, who largely earn $100,000 or more annually, suggesting this demographic remains largely unaffected by broader economic fluctuations. Similarly, Aritzia’s finance chief confirmed minimal impact on U.S. customer spending following their own price hikes earlier this year. The high-end clothing company, favored by celebrities such as Beyoncé and Bella Hadid, intends to forgo deep holiday discounts, planning only a single week of sales during Black Friday before reverting to full-price offerings.

This confidence stems from the sustained spending habits of affluent households. While lower-income consumers continue their search for bargains, especially as companies pass on tariff-related costs, wealthier individuals are maintaining steady spending. This resilience is attributed to strong stock market gains and comparatively low credit card debt, which have buffered their financial positions. Data from Moody’s Analytics reveals that the top 10% of American earners, those making at least $250,000 annually, now account for a substantial half of all consumer spending, underscoring their critical role in the retail landscape.

The embrace of the full-price model extends beyond Levi's and Aritzia, becoming a broader industry trend. Retailers such as Ralph Lauren, Under Armour, and Abercrombie & Fitch are also adopting this strategy. Patrice Louvet, CEO of Ralph Lauren, stated that shifting their business towards a more "elevated full-price consumer base" has served them well, as their core global consumer remains resilient. Under Armour's CEO, Kevin Plank, similarly emphasized pricing flexibility for loyal shoppers, citing success with new full-price items like their $45 Self-form hat and HeatGear collection, and indicating plans to evaluate further price increases where they have "pricing power" with embedded consumers.

Technological advancements in consumer tracking are playing a crucial role in enabling this strategic pivot. Retailers can now swiftly adapt their pricing strategies, offering targeted discounts only when absolutely necessary, thereby preserving profit margins. Kate McShane, managing director at Goldman Sachs, contrasted this with older methods, where blanket "25% off" sales were common. Now, if a specific item like a North Face fleece jacket isn't selling in a particular region due to unseasonably warm weather, retailers can offer a short, localized discount without impacting prices elsewhere, maximizing efficiency and profitability.

Looking ahead to the holiday season, analysts anticipate that many companies, having already absorbed significant tariff-related costs, will aim to minimize discounts. This marks a departure from past years, where aggressive price slashing was often used to clear leftover inventory. Alison Furman, a retail consultant at PwC, observed this new approach during "Summerween" and back-to-school shopping earlier in the year. Retailers are now "testing the waters" by initially placing seasonal items on shelves at full price, and only if an item fails to move quickly, do they then transition into a targeted promotional strategy. This calculated approach reflects a broader industry confidence in the affluent consumer's willingness to pay full price.