The Analyst Team

November 2, 2021

The 5 categories impacted so far by price inflation

From rising supply chain costs to elevating brand equity, we dive into areas of opportunity for price hikes.

An ongoing trend extensively covered by EDITED - inflation has been infiltrating retail. This has led to designer brands using the opportunity to elevate brand perception while mass retailers feel the pressures of rising costs.

Read on for a deep dive into five key product areas in the market already seeing increases and reach out for a demo on how to nail your pricing strategies.

Key takeaways

  • With rising material costs, retailers find themselves with an opportunity to invest in more sustainable fabrics. In denim, look to blend cotton with hemp, Lyocell, or Tencel™ where prices are beginning to level out and make an environmental impact.

  • Cult brands and must-have sneakers can command a higher retail price due to demand and are already seeing significant price increases versus 2019. Look at small upcharges initially that will go unnoticed by consumers.

  • Maintaining premium brand perception in the eyes of the consumer serves as another motivation for price increases on best-selling products. Double-digit hikes have been implemented by Louis Vuitton, Prada and Gucci compared to 2019. High street retailers should reserve this strategy for core products already in high demand.

  • A blend of rising material costs, a higher focus on sustainable innovation and customer demand have all contributed to active and sportswear retailers marking up their retail prices. Tank tops and sweatshirts are two categories seeing the largest jump in average price due to garment construction and design details.

Price inflation drivers

Supply chain challenges

The industry faces an unprecedented amount of obstacles that are set to continue into next year as the aftermath of COVID and Brexit plays out. Costs across raw materials, shipping containers and production continue to rise as surging shortages port backlogs and reduced labor forces create a bottleneck that has caused severe delays in the making and delivery of goods. Delve deeper into the impact on category sales in our report on the supply chain crisis - What's selling globally?.

Rising cotton prices

The price of cotton has reached $1.16 per pound, growing 47% from last year, levels the industry has not seen since 2011. Momentum has been building since last December in the US when the Trump administration banned companies from importing cotton from the Xinjiang region due to forced labor concerns. Extreme weather has also caused droughts, heatwaves and monsoons in key cotton-growing areas, resulting in shortages on top of shipping delays and COVID factory closures.

Elevating brand perception

While high street brands feel the strain of increased sell prices, the luxury market flourishes, associating higher price points with exclusivity and raising brand perception in a competitive market. LVMH recently revealed sales were up 20% to $15.51bn in Q3, accredited to its luxury fashion brands, including Louis Vuitton, Christian Dior and Fendi.

Consumer demand

With restrictions easing and rising household savings, it is predicted that sales could increase over 10% in the US versus last year in November and December and, in effect, increase inflation. There is additional strain on retailers working to minimize delays and stock shortages to fulfill demand.

Making up for 2020

Retailers looking to claw back losses from the previous year will be capitalizing on the current shopping boom. Strategies see brands allocating stock to their best-performing stores and online platforms to maximize sales. Luxury labels including Louis Vuitton and Chanel have cited this as a contributing factor to their price increasing initiatives.

The five categories impacted 

1. Denim

Rising cotton prices have affected denim categories the most, making up over 90% of the raw materials used in production. Kontoor Brands, which owns Wrangler and Lee jeans, has already seen stock prices fall 6% this week. Across some of the biggest players, we have begun to see increased sell prices, with Lee US and G-Star UK climbing 11% versus last year. Interestingly, price points in 2021 at the majority of brands are substantially higher than in 2019 pre-COVID.

With inflation equally affecting organic cotton prices, sustainable materials come into focus as an alternative source. Levi's has already begun to use hemp, Tencel™ and Lyocell blends within denim ranges, seeing 30% of current in-stock options across regions featuring eco-materials. As the gap closes between cotton and sustainable fabric cost prices, retailers have an opportunity to introduce blends, not only making an environmental impact but justifying increased costs to customers.

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2. Sneakers
 
The footwear sector faces huge bottlenecks and delays as factory closures and raw material shortages like plastic, nylon and mesh continue. In the US, The Bureau of Labor Statistics has reported shoe prices have increased 6.5% in September versus last year, the fastest rate in over two decades. Sneakers come into focus as China and Vietnam hold the monopoly on innovation and output, posing difficulties for sneaker production to relocate. All months barring August showed YoY increase, with September climbing 26%, peaking at $77 versus $66 in 2019.
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Similarly, the UK has seen an upward trajectory as the average price of sneakers climbed 5% from July to September. Across October, wholesalers were increasing sell prices to help offset lower margins. Retailers should bear in mind that although hyped drops and iconic silhouettes can carry the weight of additional costs, customers have already seen significant price changes, like the Air Jordan 1 Mid sneakers in the UK increasing 24% from 2019.
 
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3. Luxury handbags

The handbag is a staple accessory and underpins the identity of numerous high-end brands. Several labels have come out this year, stating intentions to bump up current prices even higher. Louis Vuitton has already applied the tactic to some of its best-selling handbags to make up for missed sale opportunities in 2020 and enhance its already strong brand position in the market. In the same vein, Chanel, Prada and Gucci have implemented similar tactics. Compared to 2019, the average full price of in stock handbags at Gucci, Louis Vuitton and Prada increased by double digits, with Louis Vuitton noting the biggest jump.

As identified in our recent LVMH vs. Kering report, pricing strategies from both groups have included marking up prices, and it's working. LVMH reported revenues +56% in Q3 and +46% in Q4, driven primarily by fashion and leather goods. Undisturbed sales provide further evidence that the luxury consumer is not deterred by inflating price tags, which can also offset the cost of rising raw materials.

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4. Cult footwear

Cult brands have a major leg up in today's retail landscape thanks to social media and the power of the influencer. Since 2019, several hyped labels have subtly found ways to increase pricing while keeping demand intact. Cult-favorite, Crocs, reported record sales in the most recent quarter, with its average selling price up 8%. The brand announced its plans to hike prices even more in 2022.

Dr. Martens increased the price of its signature 1460 boot this year with the addition of the sustainable material, Ventile, which drove the unit price up from $230 to $250. Adding eco-friendly ingredients into footwear not only makes for a better planet but for a better margin rate as well.

Birkenstock capitalized on the popularity of its Arizona sandal, which has been trending across Instagram. The brand raised prices from $39.95 to $44.95 this year, driving the overall stock price from sub-$100 all the way up to the $130-140 range.

Affiliated with premium price tags, Bottega Veneta and Ganni also took advantage of brand hype this year, graduating a majority of their in stock assortment to higher price brackets. Two years ago, the largest share of stocked footwear at Bottega Veneta sat in the £590-600 bracket versus £840-850 this year. Both labels leveraged some of their most well-known and best-selling models to implement price increases to the consumer, recognizing their selling strength.

price inflationprice inflationprice inflation price inflationImages: Dr. Martens 1460, Birkenstock Arizona Sandal, Ganni Chelsea Boot, Bottega Veneta Lug Boot

5. Sportswear

Activewear and loungewear stockists are recognizing the opportunity that lies within the category as consumers adopt healthier lifestyles post-lockdown. Even more demand is stemming from the need for hybrid apparel that can transition between working from home, exercising and running errands on the weekend.

Newness over the last three months is +18% and +10% in the US and UK, respectively, compared to 2019. However, despite a more saturated market, demand remained undeterred with nearly every apparel category experiencing an increase from the previous two years. Focusing on more eco-friendly ingredients is one tactic to help the environment while also off-setting costs in the process. Everlane updated its cotton cutaway tank with 100% organic cotton, driving the price from $18 to $24.

Q3 saw similar results as Nike updated the majority of its new-in shorts options from $30-40 to the $40-50 bucket. Lululemon started introducing higher ticket styles within its best-selling Align program. While most leggings at the retailer sit between $90-100, in 2019 and 2020, the most expensive pair of leggings in the program peaked at $118, which was then increased by $10 in 2021, elevating the exit price to $128.

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While the supply chain saga continues, EDITED Retail Intelligence leads the industry in the analytics you'll need to react quickly to market changes, minimize any inefficiencies and capture other wins.
 
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Contributions by Retail Analysts Krista Corrigan and Karis Munday

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