It is anticipated that the cost of living crisis will be more damaging to retailers than COVID.
Therefore, Retail Intelligence needs to be a brand's first line of defense against economic uncertainty. Read on as EDITED uncovers the significant price shifts across homeware and apparel.
For beauty retailers, the Lipstick Effect may be in full swing, but this category isn't immune from inflation. Discover more insights into this market here.
Faced with new guidelines regarding affordable schoolwear, coupled with the cost of living crisis, UK retailers are freezing or reducing school uniform pricing. The proportion of options priced between £5-£10 has increased from 18% to 23% this year.
With customers returning to work, the percentage of home office products discounted has doubled, and markdowns are 7pp deeper YoY. Prices for appliances have risen 75% in the US and 30% in the UK YoY. However, sales have slowed as customers pull back on big-ticket purchases for the home to save on costs.
Fluctuating cotton costs led to a rise in prices of denim jackets and skirts of between 12%-50% and 21%-66%, respectively. Digging further reveals jeans are between 6%-13% cheaper than last year as retailers ramped up discounting over summer to offset high inventory levels.
Customers aren’t yet put off by the 2%-9% lift in sneaker prices, with majority SKU sell outs up 56% over the past three months vs. YoY. However, retailers shouldn’t expect demand to continue to rise alongside prices, as lower-income shoppers are becoming increasingly priced out of the market.
1. Luxury Handbags are More Exclusive
The price of luxury’s status symbol, the woman’s handbag, is showing an upward trajectory compared to previous years. The average selling price in the market to date in 2022 has experienced a 10% increase vs. 2021, and 12% vs. 2019. Fendi is one brand driving this elevated pricing architecture. Bags at the label described as being a “Baguette” silhouette have noted an 18% increase compared to 2021, and 16% to 2019.
The luxury market has more flexibility to raise prices on best-selling bags and trends in high demand due to customers in this segment being less likely to be as impacted by inflation as the rest of the population. Additionally, the bags category is subject to higher price hikes due to their intricate construction and expensive textiles. They also hold cult backing and are seen as a lucrative investment.
2. Kidswear Prices Freeze
Traditionally, recessions haven’t impacted the kidswear market as heavily, with cash-strapped parents still willing to splurge on their children. However, price freezes are becoming a common trend among childrenswear retailers, with Marks & Spencer and Primark holding prices on selected products across the recent back-to-school period.
UK brands are faced with new guidelines regarding affordable schoolwear and, coupled with the cost of living crisis, are largely maintaining/reducing top line school uniform pricing. The proportion of own-brand schoolwear in stock falling in the full price bracket of £5-£10 has increased from 18% to 23%, while the £10-£15 price point maintains the greatest proportion of products. On a category level, the significant decline in the average price of school dresses can be attributed to a shift in assortment composition, with the percentage of styles priced between £5-£10 growing 18%.
3. Challenges for Big-Ticket Furnishings
With the cost of living crisis dampening spending confidence, buyers have pulled back on big-ticket homeware items. Research by BRC-KPMG found a steady decline in furniture and electrical sales. Home appliances are experiencing significant shifts compared to last year, absorbing price inflation from shipping and materials.
Analyzing the current average prices of this category across selected retailers reveals a 75% inflation in US prices, and 30% in the UK, YoY. Bloated price points combined with a predicted rise in electricity and heating bills over winter, mean retailers can expect appliance sales to be challenged for the remainder of the year.
Meanwhile, the home office market has been battered by discounts as
customers return to work and demand dries up – with consumers having already established a WFH space during the pandemic. This time a year ago, only 13% of US home office items were advertised as being marked down, with discount depths averaging 21%. Now, 31% of the ranges are reduced and discounts are 7pp deeper YoY.
4. Denim Prices Fluctuate
Record high cotton costs caused major denim players to lift their prices towards the end of last year. This market is still feeling the consequences, with denim jackets bearing the brunt of inflation – they are priced higher than last year in the US market by 12% and by 50% in the UK market. Ongoing demand for Y2K-esque trends has led retailers to elevate denim skirt prices by 21% and 66% in the US and UK, respectively.
There has been a development in this category, with jeans currently priced below 2021 averages – 6% in the US and 13% in the UK. Several retailers have reported inventory challenges, with misjudged consumer interest and more frugal spending leading to more aggressive markdowns. EDITED data reveals jeans have been on the receiving end, with retailers using summer sales to clear through excess inventory. Between July and August, the markdown levels on US denim jeans were 7%-10% deeper than last year. Throughout 2022, the proportion of discounted denim at UK retailers exceeded last year’s levels, while by the end of summer, products were slashed 19% more.
Recent dramatic weather shifts, including the floods in Pakistan and droughts across the US, have damaged cotton fields, which will lead to further price unpredictability. Retailers need to reconsider their reliance on pure cotton for future denim ranges and explore sustainable alternatives, such as deadstock, Circulose fibers and hemp blends to navigate lower costs and minimize their environmental impact.
5. Sneaker Hype Ramps Up
Out of the analyzed trends, sportswear isn’t seeing such broad price variances as other areas. Loungewear’s waning status, and a return to more formal dressing, have made US leggings 4% more affordable than a year ago. The average selling price of sweatpants and hoodies dropped between 1%-3%. Sneakers continue to become more expensive, particularly at UK retailers, which have raised prices by 9% YoY.
News circulated that Nike would be adding an extra $10 to the price tag of Dunks, which has since been refuted. However, sneaker price increases are inevitable as the cost of rubber has increased 32% in the first quarter of 2022 vs. early 2020. Combined with surging oil barrel prices and trade tension with Russia, retailers can anticipate higher costs for petroleum-based fabrics, highlighting the innovation opportunities to move away from crude oils and synthetics to more eco-friendly options.
Customers are not yet deterred from spending. Sneakers experienced a 56% jump in majority SKU sell outs market-wide over the past three months YoY. Still, retailers shouldn't bank on demand to keep rising with prices, particularly as customers are squeezed for groceries and gas costs. Incidentally, the generational appeal of sneakers from an aesthetic and comfort perspective could see lower-income earners, like Zoomers and older shoppers, priced out of the market, creating an opportunity to evaluate entry-priced products.
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