Apparel’s New Challenge: Deflation

What are the top three challenges facing apparel retailers today? Deflation, deflation, deflation. Apparel prices fell for the third time time in five months, evidence that the intensifying pressure on prices that is squeezing profitability and driving sourcing strategy at virtually all levels of the business may not go away for a while.

Overall inflation increased in February, according to data just released by the U.S. Department of Commerce. However, the rise was the second smallest year-on-year increase since October 2009, thanks to a huge drop in energy prices that more than offset the increase in food prices. Prices for all goods and services rose by 1.1% (unadjusted for seasonality) compared to the same month last year. Drops in commodities prices were responsible for most of the decline: The core rate of inflation, which ignores food and energy price moves, was up by a much-higher 1.6%.

The index for apparel and footwear, however, actually fell by 0.6%, its worst showing in almost four years.

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Apparel prices (excluding footwear) fell by 0.4%, compared to flat prices in January. Footwear prices dropped by 1.9%.

Women’s apparel prices edged up by only 0.6% in the month following their 3.1% spike in January. Menswear prices dropped by 0.4% in the month, up from the prior month’s 1.7% drop.

Price declines for infants’ and children’s apparel intensified, with the index down 2.7%, compared to their 1.9% drop in January. Girlswear prices fell by 3%, an improvement after their almost 9% plummet last month. Boys’ apparel prices increased 2.4%.

Government consumer price indices are based on ticketed and sale prices of products, but do not reflect the impact of other promotional discounts such as Buy One Get One, loyalty point redemption or other transaction-based discounts, so intensified promotions will result in retailers receiving even lower prices than the inflation data would indicate.

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