First Insight Inc.’s latest research on price elasticity revealed opportunities across categories where price points could be nudged higher, which could result in better sell-through and higher margins.
The report, “Decoding Price Elasticity: Emerging Opportunities,” examined elasticity and price sensitivity across categories including women’s wear, men’s wear, children’s wear and home goods, using proprietary data over a two-year period from September 2017 to April 2019.
Through InsightSuite, the company’s predictive analytics platform, the study was able to cull trends on hundreds of thousands of items with no sales history to enable retailers and manufacturers to select and develop new products that resonate with consumers as well as to market items more effectively.
“Our latest Decoding Price Elasticity study reveals insights into product categories and offers retailers and brands visibility into how best to price a product to meet demand, protect margins, maximize profits, minimize risks and avoid problems with excess inventory, particularly as retailers consider ways to offset the potential costs of tariffs,” said Greg Petro, chief executive officer of First Insight.
Through InsightSuite, the company works with retailers and brands including Marks & Spencer, Dick’s Sporting Goods, Corkcicle, Rue21, Kohl’s and Crocs.
With trade wars and tariffs in the current climate continuing to affect consumers’ price sensitivity, the report highlights the importance of understanding elasticity of demand and how to offset the potential impact of tariffs and price fluctuations. “Retailers must keep pace with changes in elasticity of demand across every subcategory to maintain solid profit margins and achieve financial goals, particularly when facing product cost increases due to tariffs,” Petro said.
Further, consumers have become more informed and involved in everyday purchases creating elevated expectations. “Knowing what your customers want and what they are willing to spend is critical to keeping up with this technology-centric, immediate-gratification customer,” Petro said. Retailers with the knowledge to meet shoppers at the right point between price and elasticity have the “greatest opportunity to increase sales and revenues while minimizing risk,” according to the company.
“Over the past two years, we have experienced a strong labor market, growth in disposable personal income particularly among Millennials, and elevated consumer confidence which is creating an environment where shoppers are less sensitive to pricing across many retail categories and subcategories,” Petro said. New opportunities in women’s wear were highlighted in the study showing that overall elasticity in clothing has continued to decrease with consumers “becoming less concerned with price.” This development will allow retailers to maintain or increase prices within this category.
Across categories, it is important to look at subcategories to see where change is occurring. “This shift is creating many opportunities for retailers and brands, but there is still a disconnect in several subcategories between what they’re charging, and what consumers would actually spend,” Petro said.
When looking at subcategories within women’s wear, for example, the lounge and sleepwear segment stands out with a “plummeting” in elasticity. Here, the study reports, retailers have an opportunity to raise price points, which can lead to better margins. Women’s accessories and jewelry, however, which has seen a 5 to 6 percent growth in the annual market, has seen a spike in elasticity.
Meanwhile, the home goods category is consistently the least elastic category, according to the report. First Insight also noted that Millennials have remained the largest demographic of homebuyers in the U.S., accounting for 37 percent of home purchases this year alone.
The company reiterated looking at subcategories and said while home goods has seen elasticity fall significantly across subcategories, a stark exception was found in housewares. Housewares continues to experience an increase in elasticity with retailers lowering prices to adhere to consumer expectations as a way to lower risk.
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