In the latest pitched battle between price and product it seems product may have claimed the higher ground -- at least according to the retailers who convened at the Oppenheimer Consumer, Gaming, Lodging & Leisure Conference in Boston last week. "Retailers need to wean consumers off discounts," Marshal Cohen, chief industry expert at the NPD Group told 600 institutional investors at the conference. "We can't have another holiday season with 70% markdowns." Cohen cited Nintendo as a company that lures customers through innovative and compelling product rather than price. "By limiting the supply of its gaming consoles, Nintendo doesn't get caught up in excess merchandise and doesn't need to resort to lowering prices." It's not alone. Urban Outfitters ( URBN), for example, has never stooped to excess promotions or discounts, even when rivals like Abercrombie & Fitch ( ANF) and American Eagle Outfitters ( AEO) began slashing prices. Instead, the apparel chain stocks product "broad and shallow rather than deep and narrow," CFO John Kyees said during the conference. Thus, their stores boast a wide variety of styles, but not many of each item. "We have trained consumers to buy product they love when they see it instead of waiting for a sale," Kyees said during an exclusive interview with TheStreet during the conference. "We have been able to successfully sell more items at full price by creating a sense of urgency and scarcity." As a result, Urban Outfitters posted record earnings in 2008, at a time when most retailers were already feeling the pangs of the recession.
Yoga-inspired apparel retailer Lululemon Athletica ( LULU) has also remained true to its premium pricing. Through tight inventory controls the company has avoided severe markdowns, which CFO John Currie said could have occurred if inventory wasn't properly managed. Granted, this push for full-price selling becomes more difficult in, say, the restaurant industry, where everyone from Burger King ( BKC) to McDonald's ( MCD) is offering their own version of the dollar menu. Drive-in chain Sonic ( SONC) has also resorted to some price cuts, but at the Oppenheimer conference CFO Steve Vaughan said management is shifting focus. "We will switch our focus from affordability to highlighting the chain's unique, high-quality, differentiated merchandise," he said. Sonic recently introduced Happy Hour (from 2 p.m. until 4 p.m.), where it promotes half-priced drinks, but does not plan to drastically change pricing at any other point during the day. CKE Restaurants ( CKR) made it clear early at the conference that it will not compete on price and will stay true to its premium, edgy image. "Right now if you pass by any fast-food restaurant, all you see is numbers in the window. Where is the food? We are not going that route," CEO Andy Puzder said in an exclusive interview with TheStreet. Wendy's/Arby's ( WEN), however, didn't get that memo. While the fast food chain isn't quite dropping down to dollar-menu prices, the Arby's division is looking for ways to improve softness at the discount level. While sales of its premium burgers have remained steady, same-store sales fell.
To combat this decline, Arby's will roll out the "Affordable 5" in October. The new lunch menu will offer a sandwich, fries and drink for $5. An average meal at Arby's generally costs about $7. Cohen said while it's time to do away with the wide-spread buy-one-get-one-free promotions, there is one way to do discounting smartly. He suggested shifting the focus to bundles, such as buying a cell phone and getting an accessory for free. Indeed, there was no shortage of ideas in Boston for ways to try to capture the dwindling consumer dollar. Still to be determined: If any of them will work.