The ultra promotional holiday season just got a little more promotional.
Across the Web and in-stores, the Classic styles by Ugg — which has earned a reputation for being one of the most sought-after boot brands — are being offered at newly discounted prices.
Insiders say Ugg’s parent company, Deckers Brands, has lowered the minimum advertised price (MAP), by roughly 15-20 percent, on Classic tall, short, and mini Uggs, effective Wednesday.
Sterne Agee CRT analyst Sam Poser and Canaccord Genuity Inc. analyst Camilo Lyon broke the news to investors Monday, with Poser suggesting Deckers had been helping some wholesalers to buffer the markdowns.
“Ugg’s largest wholesale accounts are getting markdown money from Deckers [and] the cost base on existing Classic orders is being adjusted to the lower price for those large retailers,” Poser wrote. “Smaller retailers do not appear to be receiving the same consideration. … Many independent retailers appear to have been left in the cold.”
Poser — who gives Deckers stock a neutral rating — signaled he was also concerned that consumers would stock up on the current Classic styles at reduced retail price, which could dampen interest in the Ugg 2016 Classic styles.
Lyon was more upbeat on the lower MAPs, suggesting that the move was based on Deckers seeing positive results from its planned 20 percent off promotion of the Bailey Button and Bailey Bow in late November.
Since most shoe companies with winter-weather merchandise entered the holiday season with elevated inventories stemming from unseasonably warmer weather across the country, Lyon said he viewed Deckers’ decision as a step in the right direction.
“We much prefer Deckers take corrective action with its inventory now during high traffic shopping times than to have carry over inventory linger in 2016,” Lyon wrote. “Discussions with our industry contacts lead us to believe sell throughs have indeed accelerated from the Black Friday week and into December and we believe the price reductions on Classics will further those trends. At this point in the season, the most important move Deckers can make is to help its retail partners clear out inventory, and it is taking steps to do just that.”
During its FFANY meeting on Dec. 1, Deckers management unveiled its plan for an Ugg “Classics II” refresh in 2016. Deckers said it would remove all remaining Classic Ugg boots from U.S. wholesale following this winter season, replacing them with a revamped Classics II collection featuring upgraded features.
Lyon added that the new promotions could facilitate that transition.
Meanwhile, Poser suggests the markdowns could hurt Deckers’ earnings.
“Unlike the decision to reduce the price of the Bailey Classics styles which was made prior to the 2Q16 earnings release, the decision to lower the MAP of the Classic tall, short and mini appears to have been made last week,” Poser wrote. “The impact is not likely reflected in Deckers’ guidance. We believe that margins and [earnings per share] will come in below guidance in both 3Q16 and 4Q16. Also, we do not believe that inventory growth will be in line with revenue growth until 4Q at best.”