Consumers are cutting back after the expense of the festive period, non-essential spending is significantly reduced, and retailers are looking ahead to the remainder of the year with caution as they attempt to evaluate how rising mortgage costs, energy price rises and inflation in essential goods will affect their bottom line during 2023. Couple that with rising supply chain costs and forecasting for the year ahead is coming with a great deal of uncertainty.
Of course, all of the above is nothing new. We’ve been talking about it for what feels like an eternity. The future is looking bleak and there is a pending-recession in sight. So what next?
Well, aside from the prospect of another turbulent year, the idea of absorbing higher costs is no longer an option for many retailers. So do they pass on their costs on to consumers?
UK fashion and homewares retailer Next plc thinks it is worth the risk, and many others may follow suit. The retailer last week announced plans to hike prices 8% during spring/summer 2023 and a further 6% in autumn.
GlobalData’s apparel analyst, Emily Salter, believes the move will deter some consumers, but she believes increases are essential if Next is to maintain its margins.
This is undoubtedly true, and as I say, many will likely follow suit. The winners this year will be those that achieve the perfect balance between price, product, and agility. The use of technology to build trend-right and price-right products will be key.
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The risk, of course, is alienating customers. More than ever, shoppers are switching brands to find cheaper alternatives, turning to resale (an area retailers are increasingly considering), and purchasing private label. Price rises may also lead consumers to evaluate whether they need new clothing and splurge only on occasion wear.
Clothing brands could tap into these trends by offering alternative, cheaper fabrics and lower-cost design approaches to help shore up margins. Adjusting offerings to match consumer behaviour can also loosen the squeeze on suppliers who are all facing their own pricing pressures.
Alternatives include fewer promotions and limiting the use of clearance pricing. Having leaner inventories means retailers can reduce the issue of excess seasonal inventory. Free shipping and alternative omnichannel fulfilment options, such as click and collect, are also great for winning customers over and reducing costs.
Comprehensive action on pricing, supply chains and merchandising are going to be unavoidable this year if apparel retailers are to reach the tail end of 2023 unscathed.
Consumers are savvy. They are watching prices creep up and will act according to their own benefit, regardless of brand loyalty.