Shoppers to pay 10% more for jeans and T-shirtsThursday, 17 February 2011
In a collective warning, US apparel companies have warned that they cannot continue absorbing the price of cotton and will begin passing the adding costs onto the customers. Some apparel stores have already begun raising prices in their spring collections in what's on track to become a 10 percent price hike.
Last Wednesday, the American Commerce Department announced that US retail sales rose for the seventh straight month in January. However, the continued surge in cotton prices, registered for more than 6 months already, is shrinking the industry's margins.
Wesley Card, chief executive of the Jones Group, a company that includes Nine West and Anne Klein, said: “There are cost pressures from virtually everywhere,” the New York Times reports. The company says brand prices will jump 15 to 20 percent by autumn. Other apparel retailers like Guess and True Religion, who have built their companies on jeans, a 10% bump on all cotton-based items like t-shirts, sweatshirts, and jackets is expected to show up at the cash register later this year. Raw materials account for 25-50% of the cost of producing a garment.
In similar statements, Polo Ralph Lauren and Hanes advance product prices must rise in order to protect profits. Commodity prices began rising last summer but company manufacturers and retailers absorbed those costs, fearful of a pushback by consumers struggling during tough economic times.
It remains to be seen how consumers will respond to the coming prices increases. “Consumers are not exactly in the frame of mind or economic circumstances to say ‘Oh, pay whatever they ask,’” said Joshua Shapiro, chief US economist at MFR, Inc, according to the Times. “There’s going to be pushback,” he added.
From London headquarters, Citi warns that apparel inflation will take center stage, especially with cotton prices zooming above $2 a pound. “We believe that 2011 guidance could be worse-than-expected,” Citi says. Dow Jones reports that Citi lowered its 2011 estimates for mass merchants and department stores, including Nordstrom, J.C. Penney and Macy’s.
The analysts see apparel costs rising 4%-6% in the first half and then jumping 13%-15% in the second half of the year. It should also be taken into account that year-to-date, retailers have had a pretty mixed performance as major market measures have gained. Macy’s is down 5% while J.C. Penney and Nordstrom seem to juggle pressure with respective kick-offs of +14% and +11%.
Photos: Guess Denim SS11