With 70 percent of customers saying that higher fuel and food prices will curtail their back-to-school spending, apparel retailers already pinched by higher cotton prices are figuring out how to lure customers while still making money.
This leaves those retailers trying to figure out whether they have room to pass on the higher costs of cotton to shoppers, whose budgets are already tight.
About 30 percent of consumers believe prices on new back-to-school merchandise are higher and nearly two-thirds say low prices, far above other factors, are their biggest purchase consideration, a Deloitte survey showed in July.
“Low prices continue to be what will bring customers to stores,” said Alison Paul, who heads Deloitte’s retail practice. “Retailers are getting more scientific about which items they put on promotions versus the items they leave on regular prices. There’s a delicate balance. You have to be very sharp with those top selling items.”
For popular basic items like jeans, where cotton use is significant, some retailers may choose to absorb higher costs, sometimes even selling them at a loss, in order to stay competitive and drive traffic, she said.
Meanwhile, stores are raising prices on products that more affluent shoppers buy. “Having differentiated and new products is key,” said Bob Shearer, CFO of a major apparel company. “As consumers make decisions around gas versus apparel, every dollar just becomes more important.”
Most retailers declined to be specific about their pricing strategy or detail the specific amount of price hikes.
“Retailers could be quietly raising prices and promoting at the same time,” said Erin Armendinger, managing director of the Wharton School’s Jay H. Baker Retailing Center. “It’s going to be a very promotional season.”
Source: Fox Business, August 2011