Repost: The End of the Discount? Supreme Court Rules on Minimum Pricing

Note: In light of recent changes in the quality of merchandise offered at outlet stores, we’re reposting this article from July 2007.

What: The Supreme Court recently lifted a ban that restricted the ability of manufacturers to enforce Manufacturer Suggested Retail Prices (MSRP) on retail stores.

What the Experts Say: For shoppers who are entirely focused on low prices, it might not be such a great thing, said Jeremy Feinstein, a trial lawyer with Pittsburgh firm Reed Smith whose focus includes antitrust cases.

How it Impacts You: End to designer discounts (at least as we know it). It will now be more difficult for department stores, outlets and other retail establishments to offer rock bottom sales on designer/branded items and it could signal the end (at least as we know it) of the department store style outlet stores like Off Fifth and Last Call Neiman Marcus as it will be harder for them to compete with the designers’ own outlet stores.

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  1. lisa says

    This news makes me very sad. Especially since I just bought a $2000 Chanel bag for $500 at Neiman Marcus Last Call. No more deals like that. I suppose the manufacturers argued that the rock-bottom prices were hurting their brand. I’m not sure I understand that line of reasoning- what happens to the unsold designer goods that no one buys. Will the manufacturers agree to buy them back from the retailers and then sell them at their own outlets? If not, won’t a lot of inventory that people are not willing to pay high prices for go unsold? Also, in my opinion its the fakes that devalue the brand- but I guess this was a cheaper, and easier battle to win.

  2. TBF says

    A law is only as good as it is enforced. I think alot of designers will continue to sell their overstock to outlet stores, but will probably levy some restrictions (can’t sell it below a certain price point).

  3. TBF says

    Thanks emily for your comments, but I think you might have misread the facts of the case.

    “The only safe predictions to make about today’s decision are that it will likely raise the price of goods at retail,” Justice Stephen Breyer wrote in dissent.

    Originally, the case involved a small family owned store called Kay’s Kloset in Dallas (not a big company like Wal-Mart) that dropped the price on items in order to remain competitive with bigger retailers which had certain market advantages over the smaller stores. The distributor they purchased from had certain price floors set up in which they went below and when the distributors contacted Kay’s Kloset to raise prices back above the minimum, they refused, and the distributor dropped them. Kay’s Kloset them sued the distributor and won a 3+ million ruling, and then the distributor appealed all the way to the supreme court.

    this ruling actually makes it more difficult for smaller discount designer stores to compete with larger stores, because it’s harder to lure customers to smaller boutique with a limited marketing budget than it is to lure them to a Wal-Mart. In many cases these stores have to have lost leaders (items with way low prices that they make no money on) in order to lure customers into their stores. This ruling makes it difficult to do it.

    Also many retailers are shifting to their own outlet stores, selling their own overstock in an effort to have control over pricing (note: I wrote about this, like a year ago or so, the ruling will make it difficult for Last Neiman Marcus and others to compete, because not only can a designer or distributor put a price floor on an item, they have started to send lower quality/inferior products to these types of outlet department stores. You can already see the difference at stores like TJ Maxx and Marshalls and Off Fifth which used to have some pretty amazing designers, but now are harder to find at the stores (ie Coach, and Chanel) because designers are sending them directly to their own outlet stores.

    Also, the luxury market continues to do very well, much better than the discount market, so even if they did raise their prices, people will continue to purchase the items.

    Using very simple economics, the demand for these products are continuing to rise and in order to keep pricing at the high (ridiculously high) levels they want to be able to have more control over the supply. It’s hard to justify spending $1500 on a handbag, when you know you can get it for $700 on Bluefly

  4. Mary says

    TBF – very interesting issue.  Please keep us posted with more info on it.  This makes me very sad, too – the outlets and deep discount clearance sales online are the only way I’ve been able to afford my designer clothing.  I can’t imagine going back to shopping at The Gap et al, but I won’t pay retail on my favorite lines either.

  5. says

    What! Obviously, The Court doesn’t understand the justice of getting $500 shoes for $50!!!

    And kudos to Lisa for snagging a $2000 Chanel bag for $500! That bit of information made my day!!!

  6. lisa says

    I thought a lot about this case yesterday (I’m a lawyer, I can’t help it- but I dont know much about antitrust). The more I thought about it, the more I realized that the point of this suit brought by the manufacturers was definitley to target the outlets and the online stores (like Bluefly) that offer deep discounts on current season items and therefore keep certain customers from buying retail. Stores like Walmart will be unaffected, because they have so much buying power. Stores like Neimans will continue to do what they do, because they have the buying power as well, and they serve a definite niche.  If you notice, luxury brands raise their prices every year to keep up with the legal costs of fighting fakes- and people still buy the brands at retail prices. The difference will be in the few items that don’t get sold at retail or at the end of season sales. I think that if the retailers agree to buy back these items to sell them at their own outlets (for example, the Chanel outlet at Woodbury Commons) then it will still be possible for us to buy designer items at a discount price- maybe just not as heavily discounted as they would have been at Neimans Last Call or Saks off Fifth or Loehmans. Plus, we will have to wait until the end of the season or the even the following season to get them, unlike now, where we can sometimes get current season items on sites like Bluefly for a lot less. Also, if you go into the brand outlets, you’ll notice the prices are no lower then the sale prices from the retail store. If Neimans and Saks Off Fifth want to survive, they will have to focus on their own brands- which they already do in many stores. Whether customers like this is yet to be seen. By the way, as the TBF mentioned, I have definitely noticed a change in store like Loehmans and Filenes- they sell much less designer brands than they used to.

  7. Emily says

    This is an interesting case…originally brought about by manufacturers of the Brighton handbag line to allow smaller boutiques to compete with large-scale discounters. Will this really effect our ability to buy designer discounts though? Each manufacturer can now set price floors but at their own discretion. I hardly see a crisis arising with scarcity of designer discounts. This is a huge market – manufacturers will not be willing to forego the profit they make on designer closeouts from outlet stores. The fact is, if such items aren’t offered at the low prices they are offered at now, no one will buy them. The aim of this ruling is to stop anticompetitive practices that sometimes come with economies of scale (think and Walmart slashing prices on the newest Harry Potter book so they make NO profit – smaller stores can’t compete. Behomoths hope to make money on HP fans who buy other things while in the store. Small stores can’t afford to do that.) and designer discounting works differently since these are end-of-season, closeout items with limited quantity and lesser demand. Economics, ladies!

  8. Annie says

    Awesome discussion. Political acuity is always in fashion, and TBF is perceptive enough to integrate obscure Supreme Court rulings into the day-to-day workings of being a budget fashionista. Kudos!

  9. kushmier says

    I have seen hundreds of items that have been packaged in box that have an extremely high MSRP printed right on the box. Then these items are offered for jokingly low prices. An example a complete chef’s knife set that you can buy at a discount store for only $25.00. On the box it says the MSRP is $325.00.
    Who’s kidding who here? These knives aren’t even worth the $25.00 you have to pay.
    Now this ruling says the manufacturer can enforce the MSRP.
    It may help the big time designers and manufacturers but will hurt the manufacturers of cheap stuff, that inflate the MSRP just to make the sale price more appealing.

  10. Lisa says

    This is yet another slap in the face to anyone not ridiculously wealthy. How obnoxious. Essentially what that means now is unless you go to an outlet, you are NOT going to get great prices. The MFRP is always astronomical and not for nothing but this also hurts stores. For example, INC put out some FUGLY clothes. There are RACKS of them in Macys. If Macy’s has no way to unload them they lose a fortune not to mention space. So where are all these clothes going to end up? In a shredder? It isnt like clothes from THIS SEASON THIS YEAR ever end up at 70% off. It is always overstock, or cruddy movers. RICH people do not wear last years clothing and normal people cannot afford to spend 1500.00 on a good interview or meeting suit. How HORRIBLE of these greedy manufacturers! And what another slap in the face from the REPUBLICAN COURT SYSTEM from a party that claims to give a rats butt about the little guy’s wallet. I guess what they WANT is to be able to separate THEM from US but this time instead of a scarlett letter, its the quality of our clothing. HORRID. JUST HORRID.

  11. says

    Thanks for the break down of what all this means Kathryn.  I don’t think that stores like Off Fifth will go out of business, but once again the little retailer will suffer. Needless to say so will the consumer.  Anyone that can shop strictly designer will do so, they don’t look to shop discount. They saw it, they liked it, they bought it.  The consumers that shop discount will be the ones to no longer have the luxury to buy designer goods.  Then the designers wonder why counterfeit goods do so well.

  12. sna says

    I am sadden by this news. I am queeen of discount shopping and this is how I look like a million bucks for less. i work with very wealthy people and when I see we have the same shirt or purse which I paid hundreds of dollars less makes me feel good ……I guess I wont be part of the jones anymore.

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