By  on February 25, 2009

Econ 101’s first lesson in supply and demand is playing out on Seventh Avenue: As demand decreases, prices also drop.

Mainstream designers are taking several paths to cut prices and offer greater — everyone’s favorite buzzwords — perceived value: complying with retailer requested discounts, offering lower-priced capsule collections, passing on reduced factory costs, self-editing out expensive pieces and reducing their own margins. The result is many privately held vendors are dropping their wholesale prices by up to 25 percent.

The first reason behind the reductions is on retailer request, or even ultimatum. Jamie Gorman, president of moderate knit vendor Only Nine, said she recently received a letter from the chief executive officer of a prominent retailer asking its key vendors to reduce their prices by 8 percent on all on orders through May 15.

“In good faith and based on a 10-plus-year relationship with this account, I signed the letter to show a true partnership through good and bad times, and hope when their business does turn around that this concession will lead to long-term loyalty,” said Gorman, adding she consulted her lawyer and debated the issue first.

Rather than across-the-board discounting to help retail partners, a second trend among vendors is offering selective discounting on capsule collections.

For example, Donna Morgan, which projects it will do $40 million at wholesale this year on its better-priced Donna Morgan dress line and contemporary line Ali Ro, added lower priced capsule collections to help stores grow their margins. For Donna Morgan, that means dresses that wholesale from $39 to $44, compared with the typical $59 to $79 price range, and for Ali Ro, the capsule ranges from $79 to $89, down from $98 to $150. Those products’ out-the-door prices for the ultimate consumer is meant to be in the same range of the rest of the line, allowing stores to create higher margins, said Kathleen McFeeters, president and chief executive officer of Donna Morgan.

The company has done well by aiming its prices below competitors so far, and the collections have benefitted from the flood of media about affordable clothing, McFeeters said. “The reason we opened Ali Ro was to fall below the contemporary price structure, and we think that business will continue to grow as women start really questioning the contemporary price points,” she said. “We’re giving that contemporary girl something under $200.”

Similarly, niche better knit firm Ava added select 100 percent cashmere items for fall, which wholesale for up to $140. That’s higher than Ava’s traditional $48 to $124 wholesale price range but, on the cashmere pieces, Ava cut its margin to keep wholesale prices down so stores could take additional mark up. “We wanted to give something back to our retail customers,” said Ava president Jonathan Ozdemir.

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