RETAILER S AGREE ON DIAGNOSIS, NOT ON REMEDY

NEW YORK--Retailers are quick to diagnose the reasons behind price deflation, but they aren't as certain about how to treat it or how long the condition will linger.
The key factors in apparel deflation, according to retailers, are consumers' preference for basic fashion items and the intense competition among an increasing number of retailers aiming to attract that consumer with price promotions. The unseasonable weather last fall, discouraging outerwear purchases, was no help.
However, as retailers see it, not all the causes are negatives. They also point to:
* More efficient operations, at the manufacturer and retailer levels, which allow retailers to drop prices.
* An increase in the amount of private label merchandise on the shelf, which meets consumers' demand for better value while helping retailers protect their margins.
Ronald L. Buch, vice president and general merchandise manager for fashions at Kmart Corp., said he questions whether the issue is solely price deflation.
"Do we really have deflation or are the customers buying more basic product?" he asked. "I think the key answer to this is that we have not had any flamboyant fashion trend in adult garments of either gender for some period of time."
The significant apparel items at Kmart recently, Buch said, have been basics such as flannel, Henley shirts and pocket T-shirts.
"The pigment-print, pocket T-shirt seems to be a fashion item today," he said. "As long as we don't excite the public into some new fashion trend, which doesn't seem to be on the immediate horizon, I think we're stuck with low-priced apparel."
One way to beat the deflation issue, he said, is to add a premium tier to existing basics selections. For example, Kmart introduced a $15 Henley shirt (the basic unit is $8), and it was a sellout at Christmas.
"We have to be a little bit ingenious, too," he said. "We don't want to sell as many printed flannel shirts in 1995. We want to sell a whole lot more yarn-dyed in 1995 because you have roughly a $4 or $5 higher retailer price."
Buch also predicted the deflationary spiral has at least leveled and inflation should begin picking up in 1995.
Robert Mettler, president of apparel and home fashions group, Sears Roebuck & Co., said he also believes consumers' current fashion preferences are a main ingredient in the price deflation equation.
"If jackets are not going to sell as well and casual sportswear is going to sell better, it's not necessarily a reduction in the price of a specific item, but a matter of consumer taste," he said.
Some of this price deflation is also a function of more efficient sourcing, Mettler said.
"As companies get better at sourcing, as companies get better at logistics and running their own businesses, they are providing the customer with value," he said.
Stanton Bluestone, president and chief executive officer of Carson Pirie Scott & Co., said apparel vendors have become more efficient and, as a result, are holding the line on prices.
"They know they can't have merchandise out there above certain prices because customers won't pay for it," he said.
To offset the deflation and its inherent margin pressure, Bluestone said Carson's has added more private label, which responds to consumers' demand for value.
"We are always looking at ways to streamline our operations because margins are going to be difficult to improve," he said.
In 1995, Bluestone also predicted deflation will abate as raw materials prices creep up.
"I don't think [deflation] is going to get much greater than its been in fourth-quarter 1994, which was mostly a result of sales," he said. "The whole quality-value equation is very important. People are not buying for price alone. There's a fashion and quality aspect."
Mark Shulman, executive vice president and chief merchandising officer at Specialty Retailers Inc., Houston, said he believes prices are lower because "everything is so much more promotional."
The outerwear business, a high-ticket category that dropped in price because of the weather, has been much more difficult this season, he added.
Shulman said he believes apparel prices will continue to slip this year if sales remain soft.
"Retailers think the only way to stimulate sales is to lower price," he added. Another factor keeping the deflationary pressure on is whether apparel makers continue to hold prices steady, as they have done for the past year.
Larry Angst, vice president of New York soft lines for Hills Department Stores, said apparel deflation is "just a sign of the times." It is being driven, in part, by the intense competitive pressure among retailers for market share.
"As a result, you see a lot more retailers working in partnership with manufacturers [to determine] how to deliver the best product at the best price," he said.
Angst said he agrees that consumers' preference for basics is contributing to the deflation problem, but fashion trends can still drive sales.
"If you have a fashion that captures the fancy of the consumer, and they don't already have that item in their closet, then price is not nearly as critical," he said.

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