How Lacoste Barely Escaped a Clearance Sale
Now worth $2.3 billion, cutting prices almost crushed it
The story of Lacoste, a brand famous for its little crocodile on polo shirts, shows the dangers of one of the most short-term strategies in marketing: cutting prices. The decision to overextend its brand and bring down prices almost killed the company and took more than a decade to fix.
A Brief History of Lacoste
The Lacoste brand is among fashion royalty. In 1933, René Lacoste, a French tennis champion, created a white, short-sleeved tennis shirt for use on the tennis court. The shirt instantly became a hit and revolutionized tennis fashion. In 1960, Dwight Eisenhower, the president of the U.S., was photographed playing golf with legendary golfer Arnold Palmer in a Lacoste polo shirt with its crocodile logo. In the 1970s, the brand soared to success through a series of campaigns playing on its heritage.
The Biggest Marketing Fail for a Luxury Brand
However, faced with rising competition (in particular, Ralph Lauren was founded in 1967), the crocodile was drowning in a swamp of competitors and it became less relevant. The 1980s became the decade of the polo shirt as Lacoste and Ralph Lauren’s polos battled for the cash of Americans coast to coast. Lacoste then made an almost fatal mistake to stem the losses: It extended the number of places its shirts and apparel were sold, with prices cut to fight back against competitors.
This worked in the short term in driving sales for Lacoste. But the high-end brand almost instantly crashed out of the luxury leagues. The once-revered brand quickly became identified as “cheap.” With superior branding and Lacoste oversaturated, Ralph Lauren won the battle. In contrast, the once-proud crocodile polos found their way into clearance bins in stores including T.J. Maxx and Walmart at bargain prices. The shirts began to retail for as little as $35. The exclusive famous polos also started being pushed as two-for-one offers.
Returning to a Higher Pricing Strategy
When former Levi’s executive, Robert Siegel, took over the lossmaking clothing brand in 2002, revenues were flatlining at $30 million. Despite this, he was still being advised to (once again) cut prices to satisfy investors.
The retail executive took the opposite view. The only thing, he argued, that prevented his CEO tenure being a “suicide mission” was banking on the brand again. He increased prices, with men’s shirts rising to $69 and (better-fitting) women’s shirts increasing to $72.
Sigel reduced the dilution of the brand by reducing the places Lacoste was sold (despite the long-drawn-out effects of the 2009 Great Recession). “Saying ‘no’ is the best thing you can do for a brand,” he said. Instead, “The Crocodile” only became a fixture in premium locations, such as Macy’s, Bloomingdale’s, and Nordstrom. Following the lead of Burberry and Apple, Lacoste also opened boutiques in Rodeo Drive and Madison Avenue.
Sigel kept a close eye on where Lacoste products were placed in relation to other brands. He aimed to bring Lacoste to younger people and trend-setters. Lacoste set up a special division called Propaganda Entertainment Marketing in Los Angeles, leading to Lacoste being worn by Gwyneth Paltrow in “The Royal Tenenbaums,” Lindsay Lohan in “Mean Girls,” Mathew Broderick in “The Stepford Wives,” and the cast of “The O.C.” It was slow in coming, but in February 2006, BusinessWeek reported that Lacoste USA’s sales had soared 1000%. The brand had reinvented itself and the U.S. became one of its most profitable markets.
Not a Fast or Cheap Comeback
It took more than 10 years to recover from the misguided strategy. Lacoste played a long game to get their prestige back, resuscitating the brand. “We’re not a made-up brand,” Siegel said. “A Le Tigre (an American brand designed to rival Lacoste in styling) or even a Polo was created by someone’s great marketing. We have been around since 1933.”
The company tripled its advertising spend at a time when recovery was a long way off. It had invested in Hollywood stars and top sportspeople to change perceptions. Sigel remained happy to accept low growth from third-party partners such as Nordstrom in order to bolster the high-end image. Today the company is worth $2.3 billion. It has doubled down on its luxury identity and exclusivity (accessories such as sunglasses, luggage, and fragrance now contribute to more than 40% of sales). Philippe Lacoste, grandson of founder René Lacoste said of the ordeal: “We expanded our distribution channels…[and with that] we couldn’t control our image, and it ended in disaster.”
Keeping Prices Premium in 2020
The strategy, and the challenge of maintaining exclusivity and keeping prices high, remains core in 2020 for Lacoste and any premium brand or product or service. The challenge and temptation to drop prices for short-term gains and extend distribution remains ever-tempting. This is even as Lacoste sells 50 million products across 110 countries and is represented by stars such as Novac Djokovic, Paris Hilton, American skateboarding brand Supreme, and rapper Tyler, the Creator.
However, the experience is etched into the brand’s soul. Today’s chief executive Thierry Guibert has been forced, in a new phase of keeping prices high, again to cut the number of wholesale clients and bring back licenses for footwear and leather goods to keep control of the brand’s power.
The lesson from Lacoste is that cutting your prices may be the easiest thing to do.
But it is among the hardest things to recover from.