What Inflation? Apparel Prices During the Pandemic
● Despite a rising tide and supply chain costs, the mass market is using price to push apparel.
What inflation?
While prices on goods and services have raced ahead across the economy — pushing inflation to a 39-year high in November — women's fashion is still looking for some traction, according to the latest data from the Bureau of Labor Statistics.
That flies in the face of what many see in fashion — and much depends on how far back one wants to go.
Pandemic-era supply chain pressures have certainly made it more expensive and difficult to produce and ship goods around the world. Consumers have money to spend. Ralph Laruen, Michael Kors and the like have been getting off the promotional cycle and raising prices. And Adobe said online apparel prices in November spiked 17.3 percent compared with a year ago.
But it seems that price is still king on the mass side of the market.
The pricing picture has been made fuzzy by the start and stop of the pandemic, which has now lasted long enough the COVID-19 economy of today is being compared with the COVID-19 economy of last year, measuring the still crazy against the outright insane.
Prices on all goods and services last month rose a seasonally adjusted 0.8 percent compared with October — a tad stronger than economists projected — but were up 6.8 percent compared with a year earlier, a big swing. Apparel prices were up 1.3 percent month to month and 5 percent year over year.
It was enough to stir up some outrage in Washington.
“These price increases for apparel and footwear are truly unprecedented, after 20-plus years of deflation in the apparel and footwear market,” said Steve Lamar, president and chief executive officer of the American Apparel & Footwear Association. “Shockingly, men's apparel topped the charts this week with a 7.8 percent increase during this period, while infant-toddler apparel increased
4.5 percent. This is a direct result of unnecessary tariffs and the worsening shipping crisis.
“These price tags reflect a mix of record-setting inflationary pressure, tariffs on imports, and other excessive fees faced by companies who are working to keep Americans affordably dressed," Lamar said. "These price increases are clearly unsustainable for consumers and brands alike. Unless corrective action is taken, inflation will continue spreading like wildfire. That's why AAFA is urging the Biden administration to continue working on immediate actions to unsnarl the current shipping logjams and to provide broad and immediate tariff relief to American businesses today.”
The dramatic swing upward last month was in part a bounce back from the steep declines seen a year ago as fashion headed into its first socially distanced holiday season.
The two-year comparison looks much different.
While prices in the broader economy are up 8.1 percent since November 2019, apparel prices are down 0.4 percent — with a 2 percent gain in men's more than offset by the 4.5 percent drop in women's. (Fashion, including apparel, shoes and accessories, accounts for 2.7 percent of all the goods and services that make up the Consumer Price Index).
Those cuts don't seem to be coming in high fashion.
Gary Wassner, CEO and principal at fashion factor Hilldun Corp., noted:
“The majority of our clients had to raise wholesale prices in order to compensate for soaring freight charges. Supply chain issues as well require designers to fly product in, doubling the freight on top of the already increased costs…. Stores are taking larger markups, it seems to me. This pushes the prices up. There are also much fewer markdowns and sales.
“All considered, prices at retail should be going up,” he said.
But the world's biggest retailer is thinking along different lines.
“Fighting inflation is in our DNA,” said Doug McMillon, CEO of Walmart Inc., on a call with analysts last month. “Sam Walton loved that fight, and so do we.”
It's a reminder that — despite all the talk of higher prices — some are still using price to draw shoppers even as costs rise, going after market share and mind share now and letting the bottom line sort itself out later.
“Our cost inflation is higher than our retail inflation, and that's what we would want,” McMillon said. “But we've got lots of flexibility as we monitor price gaps to decide what we do with general merchandise, what we do with apparel, for example, what we want to do with beef, with the inflation that's happening there. And it becomes a mix management exercise with us trying to manage serving the customer member well, managing the bottom line. We would care a little less about how the gross margin and [selling, general and administrative expenses] balance out as we would with what the net looks like. And so we're managing in that fashion, and that's what you can expect us to do going forward.”
Murali Gokki, managing director in the retail practice at AlixPartners and a close observer of fashion price fluctuations, said the long-term deflationary trend in apparel flipped in 2014 and that prices — from at least some angles — have been moving up. He pointed specifically to men's apparel.
“The pandemic has accelerated some of the inflationary impact for all of the reasons that we're seeing in the marketplace right now with the supply chain disruption,” Gokki said. “We believe that that's going to continue into 2023. We don't see the supply chain easing anytime soon.”
So the costs are staying put, and the question is whether or not the consumer will continue to spend, he said.
“The impact of stimulus checks is going to go away,” Gokki said. “The real challenge is, will the consumer pay higher or are they going to change their purchasing behavior?
“2022's going to be a tough year for the fashion business,” he said.
And that's saying something after 2020 and 2021.