During the worst of the pandemic, fashion’s top brands and retailers promised to emerge stronger — restructuring their way down to smaller, tougher businesses that could drive better profits.
Many delivered on that promise of better results, even with the pandemic still roaring, Omicron rising, the global supply chain tied up in knots and inflation ratcheting up prices on nearly everything.
But staying stronger into 2022 and beyond could be even harder to pull off.
Despite a world of trouble last year, consumers were flush with government stimulus, stuck staying closer to home, looking for some retail therapy and ready to spend in a rebounding economy.
As fashion moves into 2022, the consumer pendulum is seen swinging back the other way with stimulus dollars gone and the holiday buying spree over.
“The stellar growth in 2021 will be that much more difficult to match because of mounting challenges, including supply constraints, labor shortages, increasing input costs and new emerging coronavirus variants,” Moody’s Investors Service said in its 2022 outlook. “The pent-up demand we have seen for goods this year is also at risk of reversing to the extent consumers return to pre-pandemic spending patterns on categories such as commuting expenses and leisure activities.”
Retailers, too, could revert to some of their old habits. After an unusual year when consumers had stimulus dollars, an itch to spend and the shelves were comparatively bare, companies could go back to pushing discounts to grab market share or clear goods that were caught up in the supply chain.
“Product is working its way across the globe, just slowly,” said Simeon Siegel, analyst at BMO Capital Markets. “Retailers won’t be able to get enough of the good product and they’ll be sitting on the bad product. Ultimately, the environment will get harder.”
Siegel stressed it’s not all “doom and gloom,” but that companies could split into two groups.
“Which retailers and brands improved their pricing power versus which simply saw higher prices due to inventory scarcity,” said Siegel, noting that the answer will become clearer as more goods start to flow through the system.
He pointed to Michael Kors parent Capri Holdings as a company that has chosen to hold the line, highlighting a statement by chief executive officer John Idol last quarter regarding business in North America.
“We’ve just made the decision that we’re just not going to be as promotional,” Idol told analysts on a conference call. “And that means that we want to make more money, and we’ve shown that. We’ve shown that we make more money on lower sales than we did on having higher sales and trying to chase our own selves or other competitors … prices are going higher, we’re going to have less promotional activities, and we’re going to let the consumer respond to that.”
Siegel said: “That’s a powerful message. Capri is telling us they will choose to remain stronger and I think that will be the trick.”
They’ll have to stick to that commitment even as others keep at the cutting-prices game.
“It’s not a question of if, it’s a question of when promotions come back,” Siegel said of the industry in general.
The move toward higher prices for the stronger brands began well before the pandemic.
“We have proven pricing power, elevating our [average unit retail prices] across every channel and geography over the last four and a half years so that we have room to absorb near-term pressures we’ve seen in our business, such as tariffs or current inflationary headwinds,” Patrice Louvet, president and CEO, said. “This built-in agility gives us confidence as we continue to navigate a volatile global operating environment ahead.”
Levi Strauss & Co. has also been moving higher up the price spectrum and is looking to come out of the pandemic with a smaller but better business with higher prices and a stronger brand.
Some of that has to do with just where the brand is sold and how it’s presented.
“We have really focused on our wholesale distribution footprint…which is much healthier today and more premium with a negligible amount of off-price, certainly helped by a low-promotion environment today as well,” CEO Chip Bergh, said. “These NextGen stores, which we’re launching, are working. We’re going to have a total of 100 new NextGen doors this year, not alone in the U.S. to be clear, but we’re committed to premium-izing here in the U.S.”
There’s a truism in fashion that says something like 80 percent of a brand’s business comes from 20 percent of its customers. It’s a formulation that has always begged the question: Why not just focus on that 20 percent of customers who really love the brand?
More brands are giving something like that a try and have taken the disruption of the pandemic to advance the effort.
To really play it out, though, they’ll have to keep at it this year even if consumers withdraw into their shells and more retailers across the market try to draw them out with bigger and bigger price cuts.
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