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Retailers ditch higher-end fashion plans

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Shares of companies like Coach (NYSE: COH) were flying high when more people than ever were flocking to waste their money on stuff they couldn't afford.

Right at the top of the market, predictably, all the lower-end retailers thought they'd get into the act. Gap (NYSE: GPS)'s Banana Republic introduced a high-end line, and so did Coldwater Creek (NASDAQ: CWTR), Cache (NASDAQ: CACH) and AnnTaylor (NYSE: ANN). According to the Wall Street Journal (subscription required), the economic downturn gave the companies a strong rebuke. Cache is closing some of its Cache Luxe stores and Coldwater Creek is giving up on its high-end aspirations.

But I don't think it's the economic downturn that doomed these product launches. Luxury clothing is in a tough spot, but it's certainly fared a lot better than upper-middle market companies like Liz Claiborne (NYSE: LIZ) and Coldwater Creek. Rather, I think companies are using a pretty familiar tactic: blame failed strategies on the economy and minimize the impact of tactical errors made by seven-figure executives.

Here's why the strategy failed: taking a brand and raising the quality/price-point is extremely difficult. The reverse is easy, but trying to convince people to pay Coach-like prices for Banana Republic clothing -- even if it's of similar quality -- is a strategy that's destined to fail. Banana Republic has established itself at a certain price point and while people would be thrilled to get the brand at a lower price, most people willing to pay more will want a bona fide luxury label.

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Last updated: November 25, 2009: 07:48 AM

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