Promotional Holiday Puts Pressure on Apparel Prices

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Inflation crept up again in November, driven by higher housing and gasoline costs, but apparel prices remained virtually flat, as consumers began to take advantage of what many retail analysts predict will go down as one of the most promotional Holiday selling seasons in recent history.

According to Consumer Price Index (CPI) data released last week by the U.S. Department of Commerce, prices for all goods and services rose by 1.7% (adjusted for seasonality) compared to the same month last year, with the core rate of inflation, which ignores food and energy price moves, rising 2.1%.

The index for apparel and footwear, however, increased by only 0.3%. Apparel prices (excluding footwear) were flat, compared to a 0.6% increase in October. Footwear prices rose by 0.8%.

Merchants have relied even more heavily on price promotions to drive store and website traffic this year than last.

“Despite better balanced inventory than last year’s well-documented and costly overstocks, apparel retailers have seen their average selling price head in the wrong direction over the holidays,” said Sarah Engel, SVP of global marketing at analytics firm DynamicAction, whose Holiday 2016 Index analyzed $6 billion worth of online consumer transactions. “The over-reliance on promotion to drive customer acquisition is a troubling trend that will affect profitability over the next few quarters if not addressed decisively and quickly.”

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Womenswear prices increased by 0.8% in the month, their biggest increase in four months, while menswear prices fell 1.3%.

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Children’s apparel suffered the biggest price decline, driven by downward pressure on infant’s apparel prices.

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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, coupons or other transaction-based discounts.

Retailers can expect further price declines in the next couple of months, according to Engel.

“In November, the average selling price for apparel, footwear and accessories declined 1.2% year over year, but since Thanksgiving week, that decline has increased to 5 percent,” she said.


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