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Comment: The 'prisoner's dilemma' facing fashion retailers

The ”prisoner’s dilemma” is a standard example in game theory. In it, two criminals can each betray the other to gain their freedom while increasing the other’s sentence, or stay silent to reduce both sentences. If each betrays the other, their sentences will remain the same. 

The prospect of freedom means they are both likely to opt to betray – and gain nothing. In other words, two rational individuals may not co-operate, even if it appears to be in their best interest to do so.

This theory applies neatly to the fashion industry’s approach to discounting. Many of the retailers and brands we have spoken to over the past week have said they will reluctantly take part in Black Friday this year. The majority agree that it is not a favourable strategy, but say they feel compelled to take part to keep up with their competitors.

The results of our second annual discounting survey back this up. More than half of respondents told us they think their current discounting strategies are unsustainable, yet there is no sign yet of a sea change in the industry’s approach.

A growing number of companies are taking a stand, recognising that continuous discounting does too much damage to margins. Asos chief executive Nick Beighton this week revealed that the etailer has had the highest full-price sales mix this year in its history, although he did not disclose the split. He is the latest in a line of retail bosses to distance themselves from heavy discounting.

However, visit the homepage of most fast fashion etailers or walk into a high street shop, and the chances are you’ll still be met with a large Sale sign.

Meanwhile, the pressure to discount is only going to increase. This week, the Office for National Statistics confirmed that inflation edged up to a five-year high of 3% in September. Consumers face rising costs for essentials and are likely to rein in their wider spending.

As a result, expect more fashion and footwear retailers to offer promotions to tempt in shoppers in the run-up to Christmas. The impact this will have on the all-important festive trading period will only become clear in January, but it doesn’t bode well.

Like the criminals opting to betray their fellow prisoners, retailers are still failing to co-operate to achieve the best outcome for all.

 

 

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