Apparel retailers are charging higher prices and customers are accepting them, in a move away from the promotional approach that merchants were saddled with during the recession.

Comments about higher prices were heard during their fiscal first quarters and continued as retailers reported sales for May, the first month of their second quarters.

Retailers are benefiting from a determination by shoppers to buy despite an uncertain economy. Same-store sales over the past three months have been robust, averaging 4.3% growth. And June is looking good, despite being the toughest month retailers will face this year on a same-store sales comparison basis, according to Thomson Reuters.

The higher price tags reflect the tail end of higher cotton costs, and also retailers’ ability to lift prices because they are no longer saddled with winter merchandise that had to be heavily marked down. There has also been a surge in buying the season’s hot trend: color.

“The consumer is willing to pay a full price when there is pent-up demand for newness, in this case bright color and bold prints,” said Alison Levy, a retail strategist at Kurt Salomon. “There was also nice weather that brought people in.”

In the first quarter, average selling prices for apparel retailers rose 6% to $12 and units sold increased 1.2%, implying pricing power, Morgan Stanley said in a research note.

Best sellers in the first quarter included dresses, up 16%; bottoms, up 11%; and children’s wear, up 28%; while tailored clothing fell 12%. Outerwear rose 0.5% after declining for two quarters, Morgan Stanley said.

Promotional levels declined by 1.4% year-over-year while selling prices increased for sale merchandise by 7%. “This could indicate positive signs for a fading promotional environment,” Morgan Stanley said.

The greater acceptance of higher prices appears to span economic classes. Saks Inc., when reporting first-quarter earnings, credited virtually all of its gross margin growth to increased full-price selling.

At Urban Outfitters Inc., late in the first quarter, about 15% of merchandise at its Anthropologie stores was on sale, with a baseline discount level of 30% to 50% off, Credit Suisse analyst Christian Buss said. This is a significant improvement from previous seasons, when more than 30% of inventory was discounted at levels above 50%, Buss said.

At Buckle Inc., average accessory prices were up about 11.5%, and average footwear prices were up about 6% in May, the company said.

At fellow teen retailer Aeropostale Inc., Janney Capital Markets analyst Adrienne Tennant noted “lean inventory levels, both in full price and clearance,” suggesting both types of merchandise were moving.

The shift even extends to the Internet. “In June, we expect continued improvement as we (mark the) anniversary (of) the beginning of…efforts to transition to a higher penetration of full-price selling online,” Wet Seal Inc. Chief Executive Susan McGalla said last month, when the apparel retailer reported same-store sales.

Mike Brown, partner in A.T. Kearney’s consumer and retail group, feels the first quarter is only the beginning. “There is a good balance of inventory and demand,” Brown said. “And there feels to be a consistent rhythm to consumers’ shopping right now.”

There is also relief from the burden of higher cotton prices in recent quarters.

Still, retailers don’t have a completely open field. They face waning consumer confidence and global economic woes, as well as tougher sales comparisons against all of last summer.

J.C. Penney Co. had pulled back from promotions, but has had to reevaluate the strategy as it may have been too much too soon. Penney is returning words like “sales” and “clearance” to its approach and has added a few additional promotional days this year.

(Source: The Wall Street Journal, 06/13/12)

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