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Discounting and managing margins Our shoes are custom made and couriered to our customers so our shoe manufacturing and shipping costs are higher than other shoe retailers. Even with those higher costs we've priced our shoes at a similar point to other shoe retailers selling similar quality shoes so our margins at full price are lower than other shoe retailers. We peg this back by not holding stock and not having to discount excess stock that wouldn't otherwise sell. A normal shoe retailer needs to factor into their margins selling a percentage of their stock at a discount, which we don't need to do. So overall we think our margins are similar to other shoe retailers.

Another reason we don't want to discount our shoes is we're very conscious of what it can do to a fashion brand. In amongst a number of branding traits we think Shoes of Prey sits as a slightly higher than mid level fashion brand. With a drop in retail spend following the global financial crisis a number of fashion retailers, in particular Myer and David Jones, responded with lots of sales. Unfortunately for them they've now trained their customers to shop when the sales are on and they're having a hard time pulling back from that. This has had an impact on other fashion retailers who then have to follow the lead of Myer and David Jones otherwise their sales drop too.

I'm sure we're impacted by that to an extent, but given we have a unique product we think we have an opportunity to set the tone for our own pricing, and we've gone with one consistent price with no discounting. The alternative would be to set a higher standard price, then occasionally run sales at a lower price with the aim of averaging out at our current margin. We don't like that from a manufacturing point of view because it's better for our suppliers that our orders are steady each week, and we don't like how it trains customers to think about us from a price point of view and buying when sales are on as opposed to thinking about us from a fashion point of view, buying shoes to go with their spring racing season outfits etc.

It's interesting seeing how other retailers deal with this issue. In the supermarket space Woolworths and Coles go with high/low pricing while Aldi has standard prices. Most low to mid end fashion brands take the high/low approach but this becomes less prevalent as you move up the spectrum to the more high end fashion retailers.

Clearly there's no simple, correct answer to the best way to price your product and manage margins, but at this stage we're happy with the approach we're taking. I'd be interested to hear people's thoughts.
Posted by Michael Fox at 11:30 AM