Hey everyone, I've got an update on my U.S. Supreme Court antitirust decison post. One hedge fund manager I spoke with responded to my question about how the ruling will affect the apparel business. All that follows is a summary of his take: The decision about enforcing minimum pricing will have almost no effect with one possible HUGE exception. Power brands like Polo, Juicy, Coach , Calvin Klein already decide the minimum pricing of their products.
Right now Polo decides when the retail price breaks happen and how much. If a store consistently violates those rules they simply will not sell them again. This is already defacto minimum pricing. If a vendor that is not a power brand would demand price control, the retailer would simply not buy from them and would not care.
Here's where it may hurt:the off price channel. The fund manager says, "The vast majority of the business will not be affected because if a vendor wants to get rid of inventory, they simply cannot say, "take my problem, but this is the price."
The reality is the off price people take the problem and sell the goods at what they think is appropriate--75 to 80% of the purchases by ROST and TJX are on a direct basis. They buy directly from the vendor. However, the balance is supplied from third parties, be it diverters or jobbers. This is totally opportunistic in nature and without any consistency. TJX and ROST look for these goods from vendors who would not normally sell them. They have no idea when the merchandise is available and when it happens it is usually in huge quantities, (400-600,000 units is not uncommon.)
That is why it is critical that these companies stay liquid. With this new decision, it is entirely possible that the off price people will be restricted on the pricing of these desirable third party goods. The off price market is hugely dependent on relationships. It will be very interesting to see how it plays out here.
Five years out this ruling will have more of an effect. Hedge fund manager says, "We are seeing a significant trend toward vendor owned stores. The reorganization of LIZ is all about this shift. Lucky, CK, Juicy, Polo, etc with their own full price retail arms. In a double edge sword, if the department stores markdown the same labels that are full price in their own stores, it will create a problem. Of course only the power brands will have their own stores. This ruling could serve as the enforcing element in the relationships."
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