Fashion Prices Are Rising Fast, Threatening the Recovery of this Struggling Market
Dressing the kids to go back-to-school, not to mention yourself to get back-to-work, will cost more this year.
Overall, the consumer price index for apparel rose 4.2% from August 2020 through August 2021. Fortunately for parents, children’s clothing prices advanced less, up 1.4% for boys and 2.8% for girls. But new kid’s shoes will cost 5.9% more.
For back-to-work, women’s apparel prices have risen only 3.7% compared with men’s apparel up 4.5%. But the most in- demand items – men’s pants, women’s dresses and women’s accessories – have experienced the greatest bump. Men will pay 6.6% more for a new pair of pants and women will see a 11.9% jump in dress prices. Women’s accessories, underwear and leisure attire will cost 5.5% more, according to government data.
The retail intelligence company Edited recently did a deeper dive into the cost for dressing fashionably.
The prices for fashion that fit the casualization and athleisurewear trend have increased the most. That includes men’s hoodies, sweaters, sweatshirts, sweatpants and t-shirts and for women, loungewear like cardigans, sweaters and sweatpants cost more. In footwear, both men’s and women’s boots are also more pricey.
But prices for formal and office attire are going in the opposite direction, reports Edited’s market analyst Kayla Marci. She says it “reflects the continued importance of comfort and casualwear post-lockdown. In the U.S., dress trousers and suit jackets are at their lowest average price point in two years.”
With consumer demand strong so far – fashion retailer sales rose 7.4% from January through June 2021 compared with 2019 to reach $130.9 billion –and the second half of the year historically strongest for apparel sales, retailers anticipate the good times will keep on rolling.
Esteemed industry insider Terry Lundgren, former executive chairman of Macy’s, expressed a widely held view in a recent CNBC interview. Following years of virtually “nonexistent” price increases, he believes the current “modest” rise in prices isn’t a worry.
“This is not a big concern for apparel retailers,” Lundgren said. “You’re talking about a few dollars going up in price. It’s not going to change the consumer’s mind in terms of purchasing.”
But just like fashion brands can’t control consumer demand, only encourage it through marketing and promotion, they are not in control of the many factors that are causing their products to cost more.
Steve Lamar, president and CEO of the American Apparel and Footwear Association, sees a double-whammy in “the current shipping crisis on top of oppressive tariffs on apparel, footwear and fashion.” His association is calling on the Biden administration to remove tariffs and provide more oversight to the maritime industry to “help now and avert the next shipping crisis,” which is sure to come.
Besides higher shipping costs, retailers’ supply chains have been stressed almost to the breaking point. BDO’s retail and consumer products national practice leader, Natalie Kotlyar notes the fashion industry has struggled with supply chain issues for quite a while.
“This isn’t a short term problem, but one that is going to be with us for some time,” she says, adding that retailers need a reliable and resilient supply chain to ensure they get the right product in the right places to meet demand.
On the demand side, Kotlyar foresees it will remain strong this fall and holiday season. “Remember everyone was at home last year, and no one invested into new clothes,” she shares. “So our clothes are theoretically two-years old at this point. The styles have changed and more importantly, sizing for many consumers has changed too.”
The employment costs to move products around, get them on the shelves and rung up at the cash register are going up too. Forbes.com contributor Richard Kestenbaum puts it succinctly in his article, “Retail wages are a growing problem that will only get worse.”
This year fashion retailers are facing another survival test, after the painful one they endured last year: How much of their rising costs will consumers absorb? How strong and resilient are their supply chains? Have they got the styles that consumers want where they want to buy them?
Consumers will decide
Fashion retailers may end up with the short end of the stick, if consumers decide they will wait to get the items they really want and won’t pay up to purchase a second-best substitute. Consumers also are unlikely to get reprieve from higher prices by waiting for sales and promotions
“The original asking price is going to be higher because of the supply chain issues. And then, because of these issues, supply won’t be available to meet demand, so there will be fewer markdowns,” Kotlyar shares.
Fashion retailers also have to factor in the effect their price increases will have on consumers already facing escalating costs across the board. In the past year, the CPI for all items tracked by the Bureau of Labor Statistics is up 5.4%.
“If the wallet is fixed and other prices are going up, consumers are going to be forced to make big tradeoffs. Food is more important than fashion,” Kotlyar says. “And even those able to purchase luxury in the past may have to go for more affordable lines of products in the future.”
Luxury brands, in particular, have been quick to adjust coming out of the pandemic. Ralph Lauren and Michael Kos have recently raised prices, while Louis Vuitton and Chanel are pushing prices up for some of their most coveted items.
Edited’s data also reveals a reduction in the number of luxury goods products priced in the most affordable $500 and under range with an uptick in those carrying a price tag above $500 from 2019 to 2021.
Discount and fast fashion retailers that start with a lower price-point on which to base an increase should benefit if consumers are forced to tighten up. Secondary fashion retailers selling gently-used goods also stand to benefit, particularly from luxury-leaning consumers who can’t absorb the pinch.
But a past favorite destination for bargain-hungry shoppers – off-price retailers, like Marshalls and T.J. Maxx – may feel the supply chain challenges even more forcibly because so much of their stock comes from department store’s obsolete inventory which will be in short supply.
Higher prices won’t mean higher margins
In a final word, BDO’s Kotlyar warns that retailers can’t expect the price increases to translate into higher margins as in normal times.
“Typically when you have high demand and low supply you can raise your prices and margins are going to be higher too. But I don’t think that will be the case this year, given that the cost of the products are going to be higher as a result of increased trade and other costs,” she concludes. “So, therefore, you’re not going to see the significant margins to be expected with fewer markdowns. The current environment for fashion will remain challenged.”