Fashion Marketing 101: What Discount Sales Cover Up

SeriesInundated with marketing messages, Americans adjust their spending belt.

In part 1 and 2 of this series, we looked at the tricks of the trade and the psychology behind the advertising end of marketing. In this article we look at what sales and marketing tactics are covering up: The quality corner-cutting that’s happening as we’re simultaneously being driven into a consuming frenzy.

I love a bargain. This weekend I thought I officially became the queen of treasure hunting when I found a mint condition Christian Dior cashmere coat at the thrift store. When I checked out the label, I found a tiny label stating “Made in America.” Made in America? Christian Dior’s couturier is based in Paris, this little detail gave me reason to pause, and question the authenticity of my find. It could not be coming from the actual Dior couture house with that country of origin label. The question begged to be asked: who designed this coat?

On another day, I headed straight for the sales rack at J Crew, finding three t-shirts for just over the price of one. And on another occasion, when I was strapped for cash and running short of underwear, I’ll admit that I made myself go to T.J. Maxx in search of some fresh pairs among the $6.99 Calvin Klein styles mixed in with the no-name brands for $2.99. I’m totally guilty of buying some of both. But at the moment of that purchase, I was just thankful to find underwear that fit the budget and even some that seemed to save me a few pennies.

Unfortunately, all of the underwear bought that day fell apart faster than any underwear I’ve ever owned. The shoddy underthings went straight into a bag for Goodwill and I had to head to the store once again not long after my purchase. Let’s just say, I had gotten exactly what I paid for.

The Fine Print That Bargain Hunters Miss

There’s nothing like the feeling you get when you find an unbelievable bargain in fashion. Unfortunately, 99% of the time the “unbelievable bargain” is just that. Discounted sales and fashion “bargains” are actually marketing tactics that encourage us to buy more stuff, much of which we don’t necessarily need. The sales tactic: overvalue the nicely displayed full price products in the front of the store so that customers get excited about the discounted stuff on the overcrowded, back sales racks. This encourages us to visit the store more often to look for sales to avoid missing the deal. However, usually when you buy items on sale, you’re in fact paying the price closer to the items actual make-value (just above how much it cost to make it).

Recent reports show that this tactic is now beginning to backfire on the the retailers, especially those who would like to maintain their product quality and regain profit growth to pre-recession profits. Even JC Penny, who in past years held as many as 590 annual promotional, sales and coupon events, has decided it’s time to change their sales tactic.

Not All Designer Labels Are Created Equal

Sales racks aside, what about finding “designer labels for less” in department stores and at discount retailers like T.J. Maxx? What of my “made in America” Christian Dior coat which originally would have been sold in an American department store like Nordstrom’s rather than at the House of Dior? We all equate designer labels with higher quality and value, but in the world of fashion not all designer labels are created equal.

Many successful designer brands have multiple tiers of product qualities that their brands sell to reach a broader market: high end lines for the investment shopper, middle market lines for the value shopper, and low end licensee lines for the bargain shopper. Quality is more closely monitored at the top of the market where the customer is paying a premium and recognizes and expects high quality goods. Quality slides through the middle market where the customer wants better design but is not as aware of the difference in the quality of the make, and the only thing that remains “designer” in the cheaply made bargain basement find is the designer-logo-label stitched in the back.

Vogue, January 1949. Which would you be more likely to purchase: An lower quality no-name umbrella for $15 or a Dior jacquard logo umbrella for $25? The two are probably made at the same place.

That low end product is more or less designed by the factory that works with a brand’s licensing partners. Their only objective is to make easy to produce, lower cost garments for high volume mass production. The designer brands who are named in the labels of these items, in turn, get a nice cut of the sales profit for allowing the use of their logo and brand name. The use of their logo or label in turn push the sales into a frenzy that might not have been possible on an equivalent average or sub-par product.

The Path That Leads To a Global Market Profit Is Licensing

So, how does a Dior Coat come to be made in the USA? It all comes down to licensing agreements (that work kind of like fast food franchises) and the label in my coat tells the tale of how this works.
Back in 1947, Christian Dior and his business partner, Jaques Rouet, were some of the first in the fashion business to pioneer license agreements with international factory partner companies. Before then, being a clothing designer/producer meant you either owned a local factory or a couture house and basically did all of the design and production – albeit tightly monitored – under one roof.

For Dior, who owned his own couture house, fashion was his legacy and he intended to see that legacy, as well as his fortunes, grow. By 1947, he had already set up licensing agreements with production partners to manage lines of furs, socks, perfume, ties and clothes in regional production areas around the globe, thus being able to extend his brand and multiply his sales by selling product in local markets all over the globe near his license producers’ locations. Most likely, Dior would have sent a sketch and a swatch of fabric for the factory to follow and the factory would fill in all the blanks of the details on how to make it.

With a status label like Dior, his licensee partners could sell much more product than they might otherwise, because the couture house’s name was well known among the fashionable society and was considered highly desirable. Meanwhile, Dior could turn his focus toward marketing and advertising his house as a high-end, luxury market brand. This new business model allowed him to continue presenting his exuberantly priced couture collections without the pressure of needing to make a profit on haute couture because the licensed products that he barely touched were making enormous profits behind the scenes.

By August 31, 1964, The New York Times reported on a trend which had designers putting their labels into items that they didn’t actually design. What Dior’s business savvy had started almost two decades earlier had evolved and turned into a full scale, industry-wide, fashion free for all. It started with designers lending out a few sketches to a manufacturer with their branded label attached as a stamp of approval, they then collected their fee and let the manufacturers take over from there. But as the New York Times reported, designers had their names on products they didn’t even recognize, let alone would ever admit to designing. One appalled Parisian designer even bemoaned that he had found his name on cotton gloves that were on sale in New York, cotton gloves apparently being something he would never have made.

Some designer brands were more careful than others to avoid the “white glove” scenario by adjusting their licensing contracts so that all products had to be be approved by someone in their company before they headed to the stores. But overall, the fashion industry fully embraced this new business strategy that left the product details up to the factory and licensing partner and let the designer brand reap the profits without having to do all the work. Many successful brands operate through license agreements today.

Couture house, Pierre Cardin, took it particularly far. With over 900 license agreements, Cardin had manufacturers producing everything from paper clips to automobile interiors with his logo stamped on them. His brand eventually flooded the market, so much so, that it lost its appeal to the “designer” customer and was downgraded to Sears status, where it is still sold today. Clearly Cardin didn’t mind. By that point he had become so wealthy building his brand through advertisements and selling his name, that he had no problem leaving the labors, and the quality control of couture behind him.

The fashion industry had finally figured out how to transform from providing a service – making clothes for people to wear – into a highly profitable business. Brands were able to achieve this by focusing on marketing the concept of their brand as a high end status symbol while selling stuff en masse to the middle and low markets through their license agents. The job of the designer now became to present lifestyle products and advertisement imagery through marketing to keep customers believing that even their lower priced lines were worth the higher price tag attached to the brand name.

What we’re left with after all of this are stores like Macy’s who sell “designer” labeled clothes that the designers barely touched, Calvin Klein underwear that has very little to do with Calvin, and stores like T.J. Maxx, Loehmann’s, and Marshall’s full of “designer brands for less” claiming that they’re selling the “real thing” and leftovers from the high end market. Far from the truth, the leftovers were all made specifically for those low end retailers and can be sold for up to twice as much.

Secret License Agents

So who are these secret agents producing the license product for Calvin Klein, Anna Sui, DKNY, Betsy Johnson, Tommy Hilfiger, Michael Kors, Ralph Lauren and friends? The same guys who are in charge of designing and producing all the no-designer-name stuff it sits next to at the stores where you find designer goods for less. Basically you’re just as well buying no-name underwear for $2.99 as paying double the price to have Calvin Klein’s logo. Some stores, like T.J. Maxx, even have a licensee design office of their own, designing products in the name of their licensee partners, like Calvin Klein, and for their own no-name label brands at the same time so they can handle the details on some of the products in their stores themselves.

An industry friend of mine (who will remain nameless) works in quality control at one of the licensing partners that produce goods for J.C.Penny, Sears, Burlington Coat Factory, Loehmann’s, and T.J.Maxx. She used to manage quality control for brands at factories all over the world. But her new job posed a much more troubling issue than workers not knowing how to hand stitch buttons properly.

“This is the easiest job I’ve ever had. Quality control? What quality control? We get one sample to fit, make color, print, fabric and trim comments on and to approve. Then it goes straight into production. We produce the goods so fast that by the time they hand me a sample to check and approve the quality, the item is already on the factory floor being cut and sewn for the bulk order. My comments can’t even be put into effect,” she says.

“I remember being called into my boss’ office once when there was ‘a problem.’ A jacket had come in with the lining literally shredding on the hanger. This was nothing new. But the real problem was that the item was going to a retailer that required testing (some of the bigger retailers, like JC Penny require every item to have a sample sent in for quality control testing) and this would never pass.”

Was the company going to take a hit and have to absorb the cost of the bum goods? I asked. “Nope. Do you know what they decided to do?” she asked me. “They had me take the sample to a tailor to have the bad lining taken out and replaced with a nicer quality lining. Then they sent that one sample in for testing. Of course it passed, but they just shipped the rest of the product as is, shredded lining and all. I’ve never worked with such unethical people in my 30 years of working in fashion.”

I asked another friend of mine who has worked as a freelance designer in and out of one licensee company that had license agreements with Kenneth Cole and Calvin Klein, as well as producing several no-name lines that would sell at the same retailers that their licensee product would.

“We had to produce designs so fast, we didn’t have time to think about the finishings. Just fabric, sketch, maybe a button. Send it to the factory and leave the details to them to figure out,” she told me. “It was so easy, but the quality was terrible.”

But don’t they get customer complaints about the quality? I asked.

“Why would the stores ever complain? We’re giving them product that’s dirt cheap!” Apparently the customers who frequent these stores just take it for granted that their clothing is disposable. One or two wears out of them is all that is expected. This is also a part of the marketing strategy. It’s rare for anyone to make returns on product at the low end of the market, because it’s just not worth it. None of the product has any value to begin with.

According to Elizabeth Cline, author of Overdressed: the Shockingly High Cost of Cheap Fashion, “In 1930, the average American woman owned an average of nine outfits. Today, we each buy more than 60 pieces of new clothing on average per year.” But according to economists, the average American household only spends 3.1% of their income on clothing, which is approximately 22% less than what Americans spent on clothing in the 1970s – this makes sense with 3 for 1 specials and bargain blowouts but when considering how logical it is for the planet, we might want to dive a little deeper.

Editor’s note: Industry insider Louise Lagosi is not the author’s real name and is used to protect her anonymity.

Image: Diego 3336, The Consumerist, Ell Brown