Why Price Inflation is Coming to Fashion | BoF Professional, News & Analysis

In the thick of the pandemic last year, Bottega Veneta, Louis Vuitton, Chanel and other luxury brands raised prices on some of their most coveted items. Several, including Chanel and Gucci, did so twice.

Some customers took to social media to complain — was a beaded necklace really worth over $3,000? They were in the minority. Most large luxury brands are reporting record sales this year.

Now, the rest of the fashion industry is following suit and hoping for similar results.

In the last week alone, executives from brands ranging from the children’s clothing giant Carter’s to the footwear brand Crocs to Michael Kors owner Capri said they have raised prices or plan to do so in the coming months. Across all US retailers, apparel prices in June rose about five percent from a year ago, the fastest increase since 2012, according to the Bureau for Labor Statistics.

Prices for sneakers and slip dresses are rising for much the same reason they are for new cars and baby wipes: the pandemic disrupted the supply chain for all sorts of products. That, combined with surging consumer demand as the world opens back up, creates inflation. The cost of everything from cotton to oil has spiked, and transporting goods around the globe has gotten significantly more expensive. Retailers are raising pay to address a labour shortage. Companies need to quickly pass those extra expenses along to their customers to preserve their margins.

But some fashion brands say there’s no going back, even when supply chains return to normal. After a decade of cutting prices and offering deep discounts to move unsold merchandise at the end of each season, they see the pandemic’s disruptions creating an opportunity to finally hold the line on pricing.

“I don’t care if our competitors [offer discounts] — it doesn’t matter. We don’t have the inventory to do it. So it won’t happen,” Capri chief executive John Idol told analysts last week. “And not only that — we just don’t want to do it anymore.”

Companies hoping to rein in discounting and elevate their prices over the long term must elevate their brands as well. They need to give consumers a reason to buy their products other than that they’re slightly cheaper. Otherwise, they’ll be forced right back into the discount cycle as soon as their competitors start slashing prices again.

“Ultimately, the one guarantee in this world is fashion will overorder,” said Simeon Siegel, managing director at BMO Capital Markets. “Once we turn back to a normalised level of supply chain, that’s when we’re going to find out who elevated their brand versus who rode a price increase.”

Holding the Line

Economists are still debating whether today’s inflation is a product of the pandemic — and will recede along with the virus — or the start of a long period of rising prices.

In fashion, where consumers have been trained for more than a decade to expect their clothing to get cheaper, the temptation to cut prices in a crowded market will return as soon as the cost of cotton and ocean freight levels off.

Brands should therefore be using the current moment to invest in marketing and product development, so shoppers will continue to buy their products even at inflated prices, Siegel said.

“There are people that will only wear a [Nike] swoosh no matter the cost,” he added. “There are people who will buy any sweatpants they can get for $15 and it doesn’t matter what the logo is. The promotional death spiral since 2008 is predicated on appeasing the latter customer.”

Michael Kors and Ralph Lauren, brands that have long relied on discounts to boost sales, are raising prices — and sometimes even talking about it publicly — to train their customers to see their products as luxury items to be purchased at full price.

The strategy appears to be paying off: on Tuesday, Ralph Lauren shares rose 6 percent after the company reported better-than-expected North American sales. The brand partly credited its ability to charge an average 17 percent more for its merchandise.

Siegel said the real test for these brands and others will come over the holidays, when discounts may return.

“When the first few companies cross the promotional picket line, there will be many who follow,” Siegel said.

Elevating the Brand

Luxury brands use price hikes to signal their products’ value to their target customers. They typically don’t communicate these increases directly to customers, but word quickly spreads via social media and comparison shopping websites.

“Periodic increases in prices signifies to consumers the aspirational distance they’re reaching for,” said Thomai Serdari, a professor at New York University’s Stern School of Business specialising in luxury marketing and branding. “It’s much more dreamy to reach for a bag that costs $5,000 versus one that costs $500.”

For the rest of the market, the goal is usually to raise prices quietly and gradually and hope customers won’t notice a $50 sweater suddenly costs $55. But even below the luxury price point, brands try to sell consumers on a narrative that makes the extra expense seem worth it.

When Evereve, a chain of nearly 100 womenswear stores, raised its average prices by between $5 and $10 per item over the last couple of years, it was part of a broader strategy to upgrade the quality of the retailer’s in-house line, and to stock better third-party brands, said Mike Tamte, co-founder and co-chief executive.

“The price increase itself is less noticeable to a customer,” he said. “What our customer is looking for most is value. She sees the higher value in the items she’s purchasing from us.”

New brands can use openness around pricing to strengthen their bond with customers. Everlane famously did so with its “radical transparency” pledge, which included disclosures about production costs.

For skin care brand Dieux, which outlines on its website how much each of its items costs to make, sharing that information helps the brand, which charges $69 for its sold-out Deliverance serum, get in front of any questions about its prices, said co-founder and chief executive Charlotte Palermino.

“If you knew nothing about us and you saw that price … someone would compare it to a $30 serum,” she said. “Let’s show you the difference. How did they get to their pricing? I don’t know, but I can tell you how I got to mine.”

It’s a kind of “powerful” transparency normally reserved for brand investors or chief financial officers — not consumers, said Tania Debono, director of research strategy at the marketing and advertising firm Horse Practice, whose clients include New Guards Group and Nike.

“This may signal a turning point … to build strong loyalty with their community who will be inclined to spend more to maintain this level of quality and awareness,” she said.

Evereve was able to avoid raising prices during the pandemic, in part because it placed orders for fall earlier than usual, avoiding the worst of manufacturers’ cost increases. But the retailer won’t have that luxury as it lines up spring merchandise, and customers will see higher prices on some items, Tamte said.

He expects customers will understand — if they notice at all.

“We have a pretty close relationship with our customer … When you bring items to a customer in a store, there’s a lot of trust involved,” he said. “Built into that trust is a willingness to accept a smaller price increase from us.”

Related Articles:

How High Can Fashion Prices Go?

How Fashion Can Tackle Its Supply Chain Crisis

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