• Wall Street Journal, Monday, February 9, 2009 10:32 AM

Reading the red-ink handwriting on the wall, Saks Fifth Avenue in mid-November slashed prices by as much as 70% on designer clothes, becoming one of the first retailers to discount so deeply. CEO Stephen I. Sadove says his action helped his company avoid massive losses, but it was, write Vanessa O'Connell and Rachel Dodes, "the first tug on a thread that's now unraveling long-established rules of the luxury-goods industry."

Rivals including Neiman Marcus and Barneys New York responded by also slashing prices much more deeply and aggressively than usual which, in turn, clobbered smaller boutiques. Saks's maneuver marked an open abandonment of a longstanding unwritten pact between retailers and designers that boiled down to this: Leave the goods at full price at least two months, and don't do markdowns until the very end of the season. In hindsight, Saks executives say they may have cut too much in some areas.

Part of the problem is that designers' products have become so ubiquitous -- Gucci is sold in airports, Hermes has mall shops -- it's undermining the image of exclusivity. In a January survey of rich shoppers by the Luxury Institute, roughly half of high-net-worth consumers say luxury brands are becoming commoditized; 64% say they are overpriced.

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