Consumers love sales.
Black Friday and Cyber Monday are practically holidays unto themselves, and off-price retailers including TJX Cos. (TJX - Get Report) and Ross Stores (ROST - Get Report) are among the few bright spots in an otherwise dismal brick-and-mortar retail environment.
But of course, the more money consumers save, the less money companies make.
Luxury brands such as Coach (COH) and more recently Michael Kors (KORS) have consequently chosen to drastically cut back on promotional activity even as competitors like Kate Spade (KATE) frequently run discounts of up to 75%.
Coach, Michael Kors and Kate Spade didn't immediately return requests for comment.
Promotions have run rampant in the luxury accessories market throughout the past year, forcing companies to prioritize either market share at the expense of gross margins or average unit retail (AUR) at the expense of market share.
Michael Kors said Tuesday that the London-based company hopes to eventually improve AUR by 10%, but expects to report earnings and revenue below analysts' estimates for the current quarter and full year.
"I think you've got to learn to live in a promotional environment and make money in it," said Howard Davidowitz, chairman of retail consulting firm Davidowitz & Associates. "I don't think it's possible to run away from it."
He pointed to high-end department stores Neiman Marcus and Saks Fifth Avenue as proof that customers are leaving these stores for their off-price rivals, noting that Neiman Marcus is saddled with almost $5 billion in debt.
Surely, any sensible customer would choose to pay less for a Calvin Klein top at TJ Maxx than at Neiman Marcus, just as he or she would opt to buy a Coach bag at Macy's (M - Get Report) for 25% less than at a flagship store.
But Coach and Michael Kors's new business strategies would limit customers' access to discounted items sold by third parties. The companies are deliberately cutting back on wholesale offerings.
Coach has pulled back on promotions
Major handbag makers are pulling back on sales
Coach maintains a group of outlet shops that sell excess inventory and past-season items. It's not clear from company filings how much the outlets contribute to the company's sales.
Coach's wholesale revenue declined $18.3 million in the quarter ended December 31, and the company plans to close about 25% of its wholesale locations by the end of fiscal 2017. Michael Kors similarly reported a 15% decline in wholesale revenue in the Americas for the most recent quarter.
The goal of such an approach is to limit outside promotions and elevate the brand.
"When I buy a bag, I'm buying it not just for the product, but for the story it tells about me," said Deb Gabor, CEO of branding and marketing agency Sol Marketing. "If the story it tells about me is that I can get it anywhere, and it's a mass brand and everyone else is carrying it, that may not be the story I want to tell."
The strategy appears to be paying off for Coach, which reported 3% same-store-sales growth for the most recent quarter.
Handbags costing more than $400 generated almost 50% of all handbag sales, the New York City-based retailer said on its most recent earnings call.
Whether Michael Kors can pull off such a turnaround remains to be seen.
The company could go the way of tech giant Apple (AAPL - Get Report) or struggling retailer Abercrombie & Fitch (ANF - Get Report) , depending on its customers' loyalty, said Marshal Cohen, chief industry analyst at market research firm NPD Group.
When Abercrombie & Fitch refused to participate in competitors' promotions years ago, consumers simply shopped elsewhere and the company's financial performance suffered, Cohen said.
Apple, on the other hand, has cultivated an extraordinarily loyal customer base by tying its products to consumers' identities, Gabor said.
The iPhone maker discounts its products on only the rarest of occasions.
"The best brands in the world are the ones that bond emotionally with their users," Gabor said.
So much so, in fact, that they create a sense of "irrational loyalty," she added.