This post by Michelle, a long time forum member and experienced journalist, kicks off a new effort to dig into the context of fashion and style on a more regular basis. We think it’s a fascinating industry and we hope you enjoy hearing more about it.
The warnings started trickling in during the fall of 2010, then came in a torrent as shoppers prepared to usher in the new year. We fashionistas need not be in a hurry to welcome 2011, analysts warned, since the year would bring price hikes the likes of which hadn’t been seen for more than a decade. In the past few weeks, retailer after retailer confirmed the rumours were true — clothing and footwear prices would be on the rise.
Apparel companies were forced to make the tough decisions after being squeezed by rising commodity prices, they said. Businesses in all industries are often subjected to the merciless whims of the global oil market, which can fluctuate wildly and produce huge swings in the cost of transportation and other workaday corporate needs. The pending price hike, however, has more to do with the price of cotton.
Soaring demand from China, the world’s largest cotton importer, coupled with bad weather in some of the world’s key cotton-producing regions, has sent prices skyrocketing for one of the fashion industry’s staple materials. The cost of the crop has nearly doubled in the past year and reached an all-time trading high of about $2.20 per pound on March 7.
Floods in India and Pakistan put a dent in the world’s cotton supply, analysts said, adding the political turmoil in the Middle East is likely to hamper access to alternative cotton sources and keep prices volatile.
Retailers have bowed to the inevitable and made the pending price hikes official in the past few weeks. Even as apparel giants like Gap Inc. and Nordstrom Inc. announced solid earnings for their most recent fiscal quarters, they didn’t try to sugar-coat what’s in store for their customers. Gap chief executive Glen Murphy specifically cited cotton and petroleum prices when explaining that prices were heading up for the coming season.
“We have to acknowledge the fact that there’s going to be inflationary pressures, not just for ourselves, but for everybody else,” Murphy said in the company’s fourth quarter earnings call.
Executives at Nordstrom were sending out a similar message and hinting obliquely at a strategy that other manufacturers are being more open about. Analysts predict that companies who aren’t willing to pass rising costs on to their customers will have to rely on synthetic fibers to lessen the pressure on their bottom line, and Pete Nordstrom, the company’s president of merchandising, hinted that may well be in the cards for the retailer’s in-house brands.
“I think everyone is looking at a lot of the same issues about prices appearing to be going up,” he said. “The degree to which we have any control over that is really only through the products that we source and design ourselves. And I can tell you in that end, there’s a lot of effort that’s been going on now for several months about diversification strategies in different places where we source goods, and have good manufacturers that will help mitigate some of the risk around rising prices.”
Neither Murphy nor Nordstrom would speculate on how steep the price hikes may be, but industry analysts seem to have reached a consensus estimate of about five per cent. It’s a drastic change from the past decade, when clothing and footwear prices bucked broader retail trends and actually dropped significantly. The American Apparel and Footwear Association has previously reported that clothing prices dipped 10 per cent between 1998 and 2008. Prices for shoes slipped four per cent during the same 10-year period, a surprising feat considering overall retail prices surged 28 per cent over that time. Retailers’ efforts to combat the global recession also made the past three years an especially bountiful time for bargain hunters as stores put items on discount earlier and more often, it said.
It’s not all doom and gloom for the avid spring shoppers among us. Footwear fanatics may not feel the pinch as we stock up for the season, since leather costs have stayed comparatively stable. Industry heavyweights like Steven Madden Ltd. Are trying to keep prices in check by finding manufacturing locations with lower labour costs, according to Business Week. And some analysts are going so far as to say the price hike will be short-lived.
Sharon Johnson, a cotton analyst with First Capital Group in Atlanta, told the International Business Times that customers could start catching price breaks again as early as this fall.
“The high prices will cure themselves,” she said. “We’re only in mid-season right now for cotton crops. Weather permitting, we should see a record cotton crop this year, and mills should start lowering their prices.”