WASHINGTON — Retailers and apparel brands are trying to regain pricing power, but a besieged consumer burdened with falling housing prices, high unemployment, and rising food and gas prices is standing in the way.

This story first appeared in the June 16, 2011 issue of WWD. Subscribe Today.

Companies tested the waters with significant price hikes on clothing in May, asking consumers to pay more for everything from dresses to suits and pants as they made the biggest push to date to pass on soaring cotton prices to consumers, which has long been anticipated by industry executives and economists.

Retail apparel prices rose 1.2 percent in May from the prior month, with women’s wear prices up 1.9 percent and men’s wear increasing 1.4 percent, the Labor Department said Wednesday in its Consumer Price Index. It was the first time in two years that overall apparel prices were up 1 percent on a year-over-year basis, according to Moody’s Analytics.

Within the women’s apparel category, prices for dresses jumped 7.6 percent in May compared with April, driving up the entire apparel category. Prices for underwear, nightwear, sportswear and accessories rose 1.9 percent, while prices for suits and separates gained 0.9 percent and outerwear prices advanced 0.8 percent.

In men’s wear, the largest price increases came in two categories — shirts and sweaters, and pants and shorts — both up 1.9 percent last month. Prices for suits, sport coats and outerwear rose 0.8 percent.

Prices on all goods and services rose 0.2 percent in May, more than the 0.1 percent economists predicted. That whiff of broader inflation, along with worries over Greece’s debt troubles and resulting political unrest, pushed stocks down. The S&P Retail Index fell 1.7 percent, or 8.79 points, to 498.94, as the Dow Jones Industrial Average slipped back below 12,000, dropping 1.5 percent, or 178.84 points, to 11,897.27.

The long-standing question has been whether consumers would be receptive to higher prices, particularly on cotton apparel, in the context of a weakened economy, high food and gas prices and a high unemployment rate. Cotton prices have leveled off at around $1.50 a pound after jumping to more than $2 a pound earlier this year, but still double what they were a year ago. Wool prices have also seen dramatic climbs, nearly doubling to about $6 a pound, and that retail impact could be felt come fall.

John Lonski, chief economist at Moody’s Capital Markets Group, said the price hikes in apparel are some of the biggest he’s seen in a while, but he cautioned they may be short-lived.

“At long last, retailers are attempting to pass on higher costs to final product price; however, it remains to be seen whether or not consumers have the financial wherewithal to absorb higher prices,” Lonski said. “The early indication in the May report on retail sales suggests consumers are showing resistance.”

Lonski said department stores appear to have taken the brunt of a pullback in consumer spending. Sales at department stores fell 0.7 percent to $15.4 billion last month, while year-over-year sales at department stores dipped 0.5 percent, the Commerce Department reported on Tuesday.

“I think retailers catering to Americans with incomes in the middle range to lower range are the most vulnerable, and it seems, thus far, that department stores are getting hit hardest by the recent price hikes,” he said.

There have been winners and losers in the pricing game.

Andrew Fitzpatrick, director of investments at Hinsdale Associates, said Macy’s has worked through the pressure on margins from higher commodity prices by managing it “tightly and keeping down labor costs,” as well as employing a fresh marketing strategy with which consumers have identified.

“They have done a nice job recently in terms of inventory control and product placement,” said Fitzpatrick. “They seem to be getting more in touch with consumers and stocking merchandise that is timely and interesting, which is gathering momentum. They have to deal with a cost-conscious segment and they have been able to do it delicately in a very positive way.”

On the flip side, Polo Ralph Lauren Corp. has struggled with the commodity price increases and cost pressures, Fitzpatrick said.

“We saw Polo really struggling with top-line sales,” he said. “They weren’t able to offset the rise in cotton prices with higher revenue.”

Fitzpatrick said retailers and brands will keep a close eye on gas prices, and if they rise, they will back off of price hikes, but if gas prices fall, “that will give them more of reason to bump up their prices.”

Another other key factor contributing to the higher prices at retail is the rising value of China’s currency, said Rajeev Dhawan, director of the economic forecasting center at Georgia State University.

“The yuan has been creeping up by about 5 percent over the last year and people have to pass on those costs,” said Dhawan.

Over 95 percent of all apparel sold in the U.S. is imported, according to industry estimates, and China accounts for a 46 percent share of the U.S. apparel and textile import market.

“This has introduced a lot of uncertainty into the market because you have an entire generation of merchants and buyers and store operators who have never been though a period of inflation,” said consultant Craig Johnson, president of Customer Growth Partners, who has studied the relationship between pricing and sales for 30 years.

Johnson predicted that the combination of lower inventories and higher prices would lead to more full-priced selling and ultimately a stronger back-to-school season for many retailers.

“In its own crazy way, modest price increases and modest inflation will be good for the retailers,” he said.

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