Knowledge Base

When the market cools, consider a fur coat.

Here we are again in another economic downturn. Headlines in the LA Times in late March of this year, read, “U.S. home prices droop 11.4% in year”. Some would argue that it’s really a recession. Particularly if you agree with the Wikipedia definition of recession: a decline in a country's gross domestic product (GDP), or negative real economic growth, for two or more successive quarters for a year. Well, so, what’s new? Been here before, right? Right, especially for those in the retail sector - anyone there has felt the anxiety attacks more than once in the last decade.

These economic gyrations have been revisiting us for a long, long time. The first recorded was the Panic of 1797 – the effects of the deflation of the Bank of England crossed the Atlantic Ocean to North America and disrupted commercial and real estate markets in the United States colonies - it lasted 3 years. But more recently, we weathered the oil crisis of 1973 (gas guzzling, V8 muscle cars were being reined in to a 55 MPH speed limit in those days). We had the early eighties Iranian Revolution, the late 80’s/early 90”s meltdown (particularly in California) of the Aerospace industry and Real Estate markets with 18%+ mortgage interest rates. Then there was the burst of the Dot-com bubble in 2001-2003.

Any lessons learned?

A true story: A man was in the market for a fur coat for his wife in the early eighties. The economy was faltering and bargains were plenty. He was poorly suited for the task and had no experience at buying such luxurious (or frivolous you might think) items but was determined to make that year the Christmas to remember. He scanned the many ads from numerous furriers - most with bomb bursts and exclamation points promoting “Red Tag” sale prices, “Inventory reduction” sales and even “Going out of business” sales. It all made him liken these retailers to the many carpet store ads he’d seen - even more, they made him frightened to take such a plunge. He asked himself, what if these guys really do go out of business? Where did they get this merchandise, anyway? Then, one day he found himself in a Nieman Marcus store and sees a well designed, typical NM sign that read: “30% Off All Furs”. Heaven sent he rationalized, and jumped at the chance to purchase a coat – even had it monogrammed. The lesson? Not for a moment, did he think Nieman Marcus was going out of business or selling inferior products – it was opportunity knocking. Though he had not seen a NM fur sale ad, he assumed it would have been presented in the same tasteful NM manner. Now did NM sell more furs than the others? Don’t know. But the lesson learned, is that NM was still a shinning example of a luxury brand when that recessionary period ended. The others were, more than likely, history. If they had a brand to begin with, they would now have to begin the time consuming and expensive process or rebuilding their brands all over again.

So what about car dealers and real estate developers? Ads proclaiming “Sale of the Century” and “Never before Savings” really promote “Make us a ridiculous offer” or “How low will they really go?” and they bring out the bargain hunters, not the value buyers. There was a great ad in the late seventies for Honeywell Air Conditioners that showed a salesman standing in the doorway of an air conditioning store. It was pouring rain outside. The headline read: Take advantage of us while we’re down”. What a clever and intelligent way of having a winter inventory reduction sale without bruising the brand. Instead, it communicated: Opportunity knocking.

Now make no mistake about it, inventory and its control or management is the economic engine that drives, or stalls entire categories. By decreasing inventories, retailers can regain control. And marketing’s responsibility is to reduce those inventories – the faster the better. However, maintaining brand value while reducing inventories should be the CEO’s mandate to marketing. Case in point: the Honeywell air conditioner ad. In the Neiman Marcus example, the fur coat shoppers’ purchase intentions were truly at risk. He was actually afraid to buy until he was persuaded by what appeared to be an opportunity to purchase a name brand fur at a reduced price. The brand was not the least bit injured - his consumer confidence was even lifted and brand loyalty secured. None of which happened with the other brands showcasing distress ads.

So, Mr. or Ms. Home builder, car dealer, carpet or mattress store owner, go ahead and reduce prices and inventories, but instead of reducing the perception of your brand value, during a cold market, consider a fur coat.
 

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• Jim Hughes is the Founding Partner of the Brand Establishment and has developed hundreds of brands in almost every business category during his career. He personally created and developed the BE’s proven Turning the Telescope™ Discovery process as well as the 21st century small agency business model: Small+Smart™.