Last week, the US Labor Department released its September Consumer Price Index, which acts as a barometer for the economy as whole, reflecting changes in the jobs market and wages. In this, they reported retail apparel prices for September fell at a seasonally adjusted rate of 0.5%. Womenswear saw the largest reduction, with prices down by 1.5%, menswear decreased by a lesser 0.6%; meanwhile childrenswear saw growth, with girls clothing up 1.4% and boys up 0.6%.
The report lumps women’s underwear, sportswear, nightwear and accessories into one category, and notes these items dropped by 2.4%, whereas dresses and outerwear were up by 5.3% and 3.4% respectively. The report concludes that retailers are giving their customers a breather to absorb the increases of the last three months. Is this really a valid assumption? And how much value should retailers place on the findings?
In an effort to shed light on the relevance of the report’s findings, we investigated whether EDITD’s data reflected it’s assertions. We compared the monthly average price of new arrivals in one of the named troubled categories – accessories – across 5 international retailers: ASOS, Forever 21, Uniqlo, Next and Topshop. It is important to acknowledge the vast differences in market segments, so we chose to analyse only retailers competing for the mass market to ensure any comparison was like-for-like. Even so, the picture was mixed. The average price of newly arrived, non-discounted accessories during September 2013 did fall for ASOS (-3.8%), Uniqlo (-14.6%) and Next (-39.6%) when compared to August 2013. For ASOS however, that doesn’t compete with last year’s September price decrease of 19.2%. Uniqlo showed no reductions in prices at all, between August and September 2012, and Next have recouped 3.9% on last’s year’s average price for September. Clearly, performance across retailers was not uniform. In fact, Topshop and Forever 21 actually increased their prices for September 2013, by 30.7% and 34.8% respectively.
We then compared the pricing architecture of those five international retailers to see if there was a common thread that could hint at shopper behaviour or the economy and if they would align with the Consumer Price Index story. The results of our analysis across dresses, outerwear and tops, tell a compelling story.
Firstly, a note on methodology: when analysing price architecture, we look at entrance and exit prices but as these can be skewed by discounted dead stock and one-off high price points, we also look to the median band of pricing, where the bulk of assortment sits. In this report, we refer to those prices as the majority entry and exit prices, and from that, we also determine an average price point that can act as the easiest gauge of a rise or drop in a retailer’s strategy.
In the past three months, prices have increased across dresses, tops and outerwear for ASOS by comparison with the same period a year ago. Their dress category has seen the biggest shift, with the majority entry and exit prices both increasing drastically; from £17.50 to £28 at the bottom end and from £50 to £68 at the top end. The extension of that bracket has lifted the average price of a dress from the retailer, by 38%, and has moved their most optioned price point (the bracket in which there is the highest number of dresses retailing, broken into £5 increments) from £15-20 to £35-40. Within tops, ASOS have increased their majority entry point by 42.9%, moved their majority exit point by 30% and increased average price by 29.6%. However, they have kept £15-20 as their single most optioned price – clearly a comfort zone for their consumers, but perhaps unlikely to be where they make their real wins. An increase in their average price on outerwear, to £115.55 from £88.57, has also caused them to move up a price bracket, with the most options placed in the £45-50 margin.
In a similar fashion to ASOS, Forever 21 have also lifted their price brackets, with the highest investment on both dresses and outwear. The average price of outerwear has grown by 72%, to £30.44. This is likely to be due to their popular assortment of the current holy trinity of outerwear trends around this price point – bomber, biker and parka jackets. Dresses have risen from an average price of £14.26 to £16.87, but tops see a greater growth rate with average leaping from £11.80 to £17.04.
By comparison with its more prosperous competitors, Next have dropped prices across the board. The average price of tops has decreased by 27.6%, dresses are down by 36.5% and outerwear has dropped by 13.3%. The biggest movements causing this are at the bottom end of the bulk of their prices; they’ve taken the majority entrance price on dresses down from £35 to £17.50 in the last three months, compared to the same period a year ago. Tops majority entrance price has shifted from £13 to £9 and outerwear from £42 to £22.50. These alterations suggest a shift in Next’s strategy – perhaps vital to keep up with the value market, which is increasingly becoming their competition now that more department stores move to shop-in-shop formats.
Topshop have made price increases on majority entrance and exit points, as well as average price, across each of the three categories we investigated (apart from the majority exit price of dresses that decreased from £55 to £50). Interestingly though, they haven’t shifted their most-stocked price points at all. This is careful work from the Topshop buyers and merchandisers, squeezing extra gain out of price points their customers are familiar with. Outerwear has seen the most change, with the average price growing 26.4% from £70.43 to £89 and majority entrance moving up 57% to £55. Topshop have also lifted their average price point of tops by 23.6% and dresses have been slightly shunted up 3%. The latter is undoubtably a category in which the Topshop consumer would be particularly sensitive towards changes.
A different strategy was adopted by Uniqlo, who have made no changes in their majority entrance pricing across tops, dresses and outwear nor shifted their most invested in price points on these. This is perhaps reflective of their relatively unchanging assortment season to season, such that price increases would be obvious to loyal customers – Uniqlo’s consumer knows exactly where to go when they want a t-shirt under £10. Their strategy therefore, has been to add products, and raise prices, in an area where they see greater potential: for their more trend-lead dresses, Uniqlo have moved their majority exit price up by 50.3% to £29.99 and increased average price by 55%. Whilst the average price on outwear has climbed by less than 3%, they’ve increased their majority exit point by 20%. Having successfully established themselves as a provider of good quality family basics, it now seems that Uniqlo intends to extend themselves by adding to their design elements.
Our analysis of these five retailers provides mixed evidence for the Consumer Price Index Reports. It is crucial to acknowledge that examining adjustments to price architecture is extremely valuable to understand competitor strategy, but altering prices mean little without the products they relate to, and this is ultimately what the customer sees. The Consumer Price Index does not account for this. Sweeping figures like the 1.5% womenswear price decrease are without context and aren’t necessarily relevant to all retailers, but can cause panic discounting, which unnecessarily devalues the market. Retailers need to understand the more niche changes in their competitors strategy to gain understanding of (for example) which outerwear trends Topshop and Forever21 bought into this year that might have allowed them to increase their average price point by 26% and 72%. Moreover, whether or not these are selling or being restocked is of paramount importance if their competitors are to make decisions based on the information. A single figure (such as the one that the Consumer Price Index Reports has published) which lumps the entire apparel industry together should not be a call to action in itself: in a cut-throat and increasingly agile market, retailers must compete on price, design and speed to retail, both locally and globally. Retailers should thus be wary of placing too much emphasis on reports that consider a single metric for measuring success.
Market visibility that affords retailers product level knowledge, as well as overall price architecture and strategy information provides a more stable platform to make decisions on.