WHOLESALE PRICES FALL AGAIN AS MAKERS EAT COSTS TO KEEP SHARE
Byline: Joanna Ramey
WASHINGTON — Wholesale prices in women’s apparel were back in a deflationary spiral last month, reflecting an industry still skittish over the specter of losing market share by raising prices.
According to the Producer Price Index released Friday by the Labor Department, prices for U.S.-made women’s apparel — after a slight uptick of 0.4 percent in December — fell 0.8 percent in January. Against a year ago they were off 1 percent.
The monthly report also shows that textile producers are equally wary about passing along the higher costs they are seeing for raw and intermediate materials, such as cotton and synthetic fibers.
While prices for U.S.-made textiles in January increased only 0.2 percent from December, prices for synthetic fibers rose 1.8 percent and raw cotton prices went up 6 percent. Compared to January 1994, textile prices overall last month were up 0.7 percent, as prices for synthetic fibers went up 2 percent and raw cotton posted a whopping gain of 33.8 percent.
“There’s still a lot of resistance on the part of consumers to pay more,” said Dave Link, chief economist, the American Textile Manufacturers Institute.
Link said many textile makers are able to absorb the increased prices for materials by being more efficient and by changing fabric blends — for now. But in coming months, as contracts for materials expire and new ones are renegotiated, the impact of supply price hikes will likely be felt, Link said.
However, some mills certainly have been complaining about the pressures on margins from higher raw material costs. For example, Cone Mills, as reported last week, posted a 36.4 percent drop in fourth-quarter earnings and cited the “historically high cotton prices.”
Meanwhile, wholesale prices on all U.S.-produced apparel in January fell 0.5 percent against December and 0.1 percent against a year ago. Producer prices for girls’, children’s and infants’ apparel last month were down 0.3 percent against December and 1.8 percent over the year, as prices for men’s and boys’ apparel declined 0.3 percent in January and were up 0.9 percent during the 12 months.
Donald Ratajczak, director of the Economic Forecasting Center at Georgia State University, Atlanta, described U.S. apparel makers’ pricing strategies as “survivalist.” They involve trying to offset increased costs in other areas of operations. Ultimately, though, some of the price hikes are being absorbed, he said.
This lid on pricing reflects weak demand and growing pressure from retailers for price breaks, along with the increasing competition from imports, he pointed out. These are the same complaints constantly being sounded by manufacturers themselves.
“What everyone is doing now is employing zero-pricing strategies, assuming that you will never get any price increases and basing your business plan on that fact,” Ratajczak said. Nevertheless, he is somewhat bullish about apparel demand picking up by spring, which, in turn, will give manufacturers room to boost prices slightly.
The drop in wholesale prices follows what has been happening even more dramatically at retail. While the Consumer Price Index for January won’t be released until Wednesday, all of 1994, as reported, showed a drop of 4.4 percent in retail women’s apparel prices, the steepest year-to-year drop ever. It was a situation many analysts saw as exacerbated by too many stores and too much inventory.
However, Ratajczak forecasts wholesale prices for all apparel to increase 0.9 percent to 1.2 percent this year, compared to 0.4 percent for 1994. He did not have a forecast for women’s apparel prices.
Ratajczak’s optimism is based on the assumption that after three years of slow apparel sales, consumers have pent-up demand and, if anything, will be forced to replace threadbare wardrobes. He cautions that this is only likely to occur if, come spring, the weather coincides with the type of apparel in stores. Retail apparel sales took a blow at Christmas due to unseasonably warm weather.