WOMEN’S APPAREL PRICES AGAIN HEAD SOUTH IN AUGUST, OFF 1.8%

Byline: Joanna Ramey

WASHINGTON — The August Consumer Price Index provided a jolt for analysts who thought women’s apparel might be coming out of its deflationary mode.
The CPI, released Tuesday by the Labor Department, showed that retail prices for this merchandise dropped a seasonally adjusted 1.8 percent for the third consecutive monthly decline.
The plunge was the largest one-month decline in women’s apparel prices since February 1996, when they dropped 2.1 percent.
In July, they dipped 0.3 percent, after declining 0.2 percent in June.
Before these back-to-back decreases, women’s apparel prices were enjoying a nine-month streak of increases and appeared to be shaking off the depressed cycle that had lasted for more than two years.
Analysts say overstocked summer inventories apparently forced stores in August to heavily discount merchandise. Likewise, introductory prices for fall merchandise were lowered in order to spur shoppers to buy, according to analysts.
On a year-over-year basis, women’s apparel prices in August were holding more than firm, up 1.9 percent for the seventh-consecutive 12-month uptick.
Still, the steep drop in August against July was unnerving and had analysts puzzling over what it meant for the rest of the fall season.
“The price drop is pretty shocking,” said Carl Steidtmann, director of research, Management Horizons, a division of Price Waterhouse. Steidtmann had expected a decline but not of this magnitude.
“It certainly doesn’t bode well for third-quarter profitability for a lot of retailers if they have to heavily discount to get their inventories right. It also says the fall season is off to a slow start,” Steidtmann said. “The trend until now was to have slightly higher pricing, which was very encouraging. But I think August suggests that trend could have been a temporary one.”
Value-conscious consumers are still holding sway over retailer pricing decisions, said Donald Ratajczak, director of the Economic Forecasting Center at Georgia State University, Atlanta. “Looks like the ability to raise prices in the apparel industry has vanished again,” he said.
In addition, Ratajczak said August’s price decline may also reflect retailers’ ability to offer lower fall prices on imported apparel due to a strong dollar. Since the dollar’s buying power has weakened over the last month, this trend may be short-lived, he said.
Bob Untracht, national director of retail services, Ernst & Young, said retailers seem to be testing lower introductory prices for fall merchandise.
“The strategy in the past has been to put merchandise on the shelf with giant prices and then take these drastic markdowns. Maybe we’ll be seeing fewer promotions later in the season,” he said.
If this strategy holds up, Untracht forecasts strong Christmas sales. “But once the prices come down, the profits won’t be there,” he said.
Irwin Cohen, chairman, trade, retail and distribution group, Deloitte & Touche, said he was puzzled by the steep decline in women’s apparel prices in August, given that summer sales were relatively good.
Clearance sales of overstocked summer merchandise could have played a role, in combination with lower introductory fall prices.
Nevertheless, Cohen doesn’t see widespread apparel promotions in the near term.
“It’s not like several years ago, when retailers were really discounting,” he said.
Apparel prices overall last month declined 1 percent — which, in the context of all retail prices, offset a 1.7 percent leap in energy prices. As a result, prices for all retail goods in August increased 0.2 percent against July.
On a year-over-year basis, apparel prices last month increased 1.4 percent, and prices for all retail goods were up 2.3 percent. This led analysts to forecast the Federal Reserve would probably leave interest rates alone, given the continued lack of inflationary pressure in the economy.
Retail prices for men’s apparel in August declined 0.2 percent against July and were up 1.9 percent from August 1996. Girls’ apparel prices were down 3 percent for the month but up 2.2 percent over the year, as boys’ apparel prices declined 0.5 percent in August and were up 3.3 percent from August 1996.
Among the women’s apparel prices tracked by Labor analysts were coats and jackets, which increased 2.7 percent for the month and were up 9.5 percent over the year. Dress prices declined 4.8 percent in August and were down 4.9 percent over the year, as prices for separates and sportswear dropped 3 percent for the month and were up 1.5 percent over the 12 months. Prices for underwear, nightwear, hosiery and accessories dipped 0.1 percent for the month and were up 1.7 percent over the year, as prices for suits increased 0.2 percent last month and were up 7.5 percent against year-ago levels.

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