Retail prices expected to climb in fall
Retail economic snapshot: Over recent years, shoppers have been conditioned to expect discount shopping during our economically challenging times because of the excess inventory that retailers hold. However, this will be coming to and end as the financial landscape changes come the fall season and the recession continues. This time, no deals are in sight for the consumer. Due to the increasing cost of labor and raw materials, experts predict a spike of 10 percent to 15 percent or more, depending on the product, in the price tag of most fall merchandise.
With retail making tremendous strides in late 2010 and early 2011 gaining positive momentum, the news of across-the-board commodity inflation certainly represents a questionable and challenging road for both retailers and consumers.
No company will likely be immune, and mass retailers such as Wal-Mart Stores Inc., Target Corp. and J.C. Penney Co. Inc. will particularly face the most challenges due to their large volume and thin profit margin.
“I’ve been at this game for a long time, and I’ve never seen increases this steep, this quick,” Jeffrey Sherman, president of The Echo Design Group Inc., and formerly chief executive of Hudson’s Bay Co., told WWD. “This will absolutely impact consumers.”
The Kurt Salmon consulting firm forecasts a 10 to 20 percent rise in landed costs across major retail sectors for fall, which will result in apparel and accessories inching up 10 to 15 percent. Experts are concerned what this means for the gains retailers have made this year.
Particularly impacted are chains in which the cost of raw materials is a high percentage of the product cost. With the fees of materials such as cashmere, cotton and leather climbing, retailers such as Wal-Mart and Target will have to scurry to sustain reasonable price margins.
“For customers at the luxury and higher levels, price increases are less of an issue. At opening prices, customers will think twice about buying things,” Arnold Aronson, managing director of retail strategies for Kurt Salmon, said to WWD. “Retailers that pride themselves as low-price leaders are going to have to be very careful.”
Still, some companies have rallied, and retail officials are doing their best to combat this inflation. These executives report they are combining sourcing, compelling vendors to absorb the increases, re-fabricating items with more details to validate price increases, or modifying assortments toward more private label for higher margins.
These ramped up prices for apparel are expected to have the domino effect of adding to inflation in other sectors.
It's anyone's game what will happen for spring 2012.
“No one can give us pricing right now for spring 2012,” Lisa Mayock, co-founder/designer at Vena Cava, said to WWD. “It’s frustrating.”
We want to hear from you:
We have to ask, with natural disasters affecting entire populations, the price of gas inching up at a regular rate, and the unknown global costs of the Japan earthquake, where does this leave sourcing and consumer buying power? How does inflation affect you?