Markdowns are hurting fashion. New York retailer Essx thinks it has the solution

To receive the Vogue Business newsletter, sign up here. End-of-season sales in January and July. Black Friday and Cyber Monday. Memorial Day in May — otherwise known as the weekend of the long-awaited annual Ssense sale — bookended by Labor Day deals in September. Sale periods in the US are getting longer, and markdowns more extreme, in a cycle that’s detrimental to retailers, brands and consumers. Essx, downtown New York’s newest concept store, is doing things differently. The retailer opened two months ago and is backed by and shares a co-founder with Scarce, a mystery box platform founded in 2020, which has since shifted gears to give consumers an element of choice. From today, the ‘Essx Powered by Scarce’ page will be updated weekly with 30 items for consumers to bundle together. The more they select, the better the box’s value. The model moves away from a race to the bottom on price, while still helping to clear unsold stock, says Laura Baker, who founded Essx with Abe Pines, co-founder of Scarce, and Yoel Zagelbaum, president of real estate agency Riverside Abstract. “It doesn’t feel like a devalued product,” she explains. Over the pandemic, discounting was “widespread and deep” as retailers tried to cope with excess inventory and dipping consumer demand, says Neil Saunders, managing director and retail analyst at analytics firm Globaldata. The trend persists: “The promotional environment is currently heightened as demand is weaker and consumers are having to be persuaded and nudged into buying things,” he says. “The same is true for retailers committing to wholesale inventory.” The cycle of what Vogue Business’s Christina Binkley calls “a Darwinian evolution of discounting” means pressured margins that drive further cost cutting that make wholesale an ever-more unforgiving — and unsustainable — venture for emerging designers. Still, a zero-markdown model is a hard sell in today’s retail landscape, where consumers have come to expect discounting. Baker is under no illusions. “We know we’re not going to change the industry overnight. But at least we can provide an answer,” she says. “We’re all going to win if people can start to move away from the markdown model.” Backed by a $7 million investment from a group of retail and real estate investors (led by Pines’ distribution company Luxury Emporium) and boasting celebrities like Diddy as customers, Essx is betting on emerging fashion talent to encourage people to shop full price in-store. Brands stocked include Martine Rose, Bianca Saunders, Wales Bonner and newcomers Aris Tatalovich and luxury pearl brand Merc (which Essx began carrying after the founder, Dominic Stewart, walked into the store wearing one of his pearl pieces). The ambition is to revive the New York shopping scene the founders remember from their youth, which nurtured exciting young fashion designers. “We all grew up shopping through the racks of Opening Ceremony and finding new brands at Barneys,” says Baker. The 7,000-square-foot store is hard to miss, taking up an entire block of the Lower East Side’s Essex Street. Large glass windows offer a glimpse into the bright space, designed by architecture firm Leong Leong. A ticker running across the window that runs through the store’s brands (in future, the display will change depending on what’s going on in-store). But it eschews bells and whistles, focusing instead on the designers. “You keep reading about experiential retail,” says Baker. “The in-person experience is the experience. I don’t think you need a carousel or a swing set in the store.” Protecting brand equity According to Globaldata’s Saunders, the damage of markdowns is twofold: “The most immediate implication is the damage done to margins and profitability,” he says. “The longer-term damage is done to brand equity because retailers and consumers come to expect a discount and it becomes more challenging to get them to buy at full price.” Emerging designers bear the brunt, but larger brands also feel the impact when consumers hold off on spending until the sales, Baker points out. Scarce was founded at the end of the pandemic, when stock overhang was pushing retailers to discount even more deeply. Co-founder Yossi Shetrit saw the mystery box drop model as a means of clearing this inventory without slashing prices on individual items. “We found a way to bring new life into pieces that were kind of overlooked,” he says. Not framing the boxes as marked-down was key, so as not to dilute brand or product equity. This approach informs Essx’s own. Only once customers have placed multiple items in a box and moved to checkout do they receive the final discounted price — calculated using AI — alongside the total original retail value of the contents. On the backend, internal factors like inventory levels impact the discount applied per product. “On the business side, it’s about our profitability and our net margin on the bundle,” Baker says. On the front — consumer — end, it’s about the fashion. Baker likens it to Build-A-Bear. She doesn’t expect the lack of individual pricing to be a turn-off — instead, it’s part of the engagement. Particularly as most of those shopping will have an idea of the value of the brands on offer. “Most people will know that if it’s Martine Rose, it’s probably about $800,” she offers as an example. In this case, they might opt for lower-ticket items to populate the rest of the box. It’s here that gamification comes into play. Angelo Urrutia, founder of American brand 4S Designs, thinks of it as a happy medium in a wholesale system that rewards markdowns. “It’s a fresh way to maintain a special atmosphere with full-price, in-season product while still preserving the store’s viability for both designers stocked and Essx as a retail destination,” he says. Designer Edward Cuming is equally enthusiastic. “I love the idea of our brand in a look with other brands — this is the most exciting part and also the reason we love multi-brand retail spaces,” he says. “It feels like a great initiative to combat the breakneck speed of seasons and allow pieces to last longer as the work, especially of younger brands, feels devalued after only a short time on shop floors.” Guillermo Andrade of LA-based streetwear brand 424 describes the initiative as giving collections a “second life”. Copenhagen-based fashion brand (Di)vision, which is stocked globally at retailers including Ssense, Bloomingdale’s and Hypebeast Hong Kong, as well as Essx, wants to avoid a race to the bottom with its stockists. “Being included in a box offering is very appealing for us as it helps avoid outcompeting our different retail partners with markdowns at different times and overstock,” founder and creative director Simon Wick says. (Di)vision also offers bundles on its own site. The page reads: “Just keeping the hustle real and letting you know there’s a coin or two to save out here.” Essx and Scarce plan to patent and licence out the tech. “The goal is that other retailers can tap into this,” Baker says. Whether or not larger retailers will diverge from traditional markdowns is up for debate. Though designers are open to bundling, it’s not an easy switch for retailers. “Unfortunately, the wholesale model is complex and needs buy-in from a lot of parties, so it’s usually much easier to resort to simple discounting or sales,” Globaldata’s Saunders says. Baker and Shetrit are banking on fashion’s next generation to move the needle. “Change is going to come from the emerging designers, from the newer retailers,” Baker says. “It’s always from the younger generation.” Comments, questions or feedback? Email us at feedback@voguebusiness.com. More from this author: What happens when everything on TikTok is for sale? From corsets to commerciality: What’s next for Wiederhoeft? Can fashion week help the industry crack social commerce?

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