The Ever-Shrinking (Denim) Price Tag
By Stefano Aldighieri, President, Another Design Studio 2.0
Whenever I check out what’s in stores anywhere in the U.S., Europe or Asia, I cannot help but notice all of the unbelievable prices that are advertised for jeans – even before you take into account that the merchandise is on sale most of the time, with prices slashed even further.
In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. We are all used to it. Prices go up over time. We can all recall when gas was cheaper, or when the movies or a cup of coffee cost less.
According to the U.S. Bureau of Labor Statistics, prices for coffee, a commodity, were 19.46% higher in 2017 than 2000.
All commodities fluctuate up and down according to supply and demand, but they very seldom stay flat or decrease over time. Cotton, for example, has maintained an upward price trajectory over the past 20 years, despite major events that have caused occasional spikes and drops. Prices for a pound of cotton have been as low as $0.2661 in 2001 to as high as $2.0920 in 2011, according to the research platform Macrotrends.
According to the United States Census, the average price for a home in the US was just above $200,000 in 2000. It is nearly double today. The average new car in 2000 would set you back $21,850, says Statistica, which compiles statistics and studies from more than 25,000 resources. Today you will need more than $36,270 for the same car, according to Kelley Blue Book.
Gasoline in the United States was $1.51 per gallon in 2000, according to the U.S. Energy Department. Today it is around $2.61.
Prices go up, it is a fact of life and we all—sometimes begrudgingly—accept it and live with it.
It is also true, however, that apparel operates outside this norm. Customers expect the price of clothing, including denim, to go down over time. Here, I try to explore the factors pushing the price of a pair of jeans down over time.
First Up, A Market Shift
In the early 2000s, the denim industry went through a change. New brands began appearing on the marketplace and started selling jeans at prices never heard of before, at least in the U.S. The so-called “premium” denim category was born and people were spending more than $100 and sometimes up to $300 for a pair of jeans.
This phenomenon, however, did not last too long. The 2008 recession burst the denim bubble and the category never grew to the point where it made an actual difference on the average selling prices.
At the same time, we witnessed the explosion of fast fashion and denim became a large part of the assortment. Suddenly, people could find garments that resembled what the better brands were doing but at a fraction of the cost.
The scene out there today is clear. There is a tiny percentage of very expensive product at the top in the luxury category, which is pretty much immune from market shifts or recessions.
At the opposite end are a large number of “value” retailers, which are enjoying a growing market share. This is where we now see jeans sold for ridiculous amounts, even as low as $5.00.
A pair of Levi’s 501s sold for $34.99 in 1996. At press time, a basic pair Levi’s 501s were on sale for $24.98 onLevis.com, with the offer of an additional 30 percent off with a promotional code – bringing the cost of the pair of jeans to $17.49.
Squeezed in the middle are the traditional brands and retailers, which traditionally covered the “better” and “aspirational” categories.
To top it all off, there has been a massive swing from conventional retail to online distribution. This topic is too large and complicated to address here, but suffice to say that the growth of online is not the root cause of the current retail malaise, but only accelerated the situation.
And Then, A Sourcing Shift
Since retailers and brands operate under the flawed assumption that the key driver of their sales is price, they moved their sourcing from the domestic mills and factories to cheaper overseas alternatives. The shift resulted, sometimes, in inferior quality and longer lead times, but increased their margins.
We then saw a wild proliferation of new players in the denim arena. All of a sudden, dozens of new denim mills (there are currently hundreds of mills worldwide!) and factories popped up around the world. There is a very low entry barrier to get into this market and people assumed that the demand would just keep growing and the added capacity would be easily absorbed.
While this indeed worked for a while, the denim industry is now seeing the effects of overcapacity. Mills and factories have built monster production facilities, which need to be fed every month. The effect is that they all go to the same customers and are forced to accept any price offered to them, unless they want to shut down. (It is hard to believe there are still new facilities being added as we speak.)
In the Western world, namely North America and Europe, consumption of apparel is close to flat. According to The NPD Group the US denim industry grew 3 percent in 2016, reaching $15.3 billion in sales, after years in a slump.
It is true that non-traditional markets, including Asia and Latin America, are still growing at a fast pace, but this is not helping our local retail. According to a study by Cotton Inc., the global denim jeans market is projected to grow 8 percent from $55 billion in 2015 to $59 billion by 2021, with Asia and Latin America accounting for a good part of that growth – representing 12 percent and 15 percent growth,respectively.
And Then the Obsession with Sales
Another factor that contributed to the stagnation of prices in apparel is the widely spread obsession with tricking the customer into believing that a “sale” is a bargain.
It worked for a while, but it is now a joke. Customers have simply understood that buying at full price is for suckers and that all one needs to do is wait a few weeks and buy at a sharp discount.
Additionally, the marketing geniuses in retail have relied on trying to outdo each other for decades by cutting each other down on price instead of trying to offer a differentiated and value-added product.
In addition to undercutting each other on price, these clever retailers have also consistently tried to ship their good into stores BEFORE one another. That is why it is hard to find a winter coat in December, but shorts and summer shirts are already there.
After a few years of this, let’s see how the vicious circle is working now:
- Retailer A decides to put his fall assortments on the floor before Retailer B.
- Customers visit the stores, see fall merchandise in the store when it is still 80 degrees outside and are not compelled to buy.
- Retailer A sees slow sales in the first few weeks and panics. He cannot afford to be left with all the merchandise he had to buy 6-plus months ago and decides astutelythat a special sale is all that is needed to move it.
- Retailer B sees Retailer A offer sale prices. Fearing that he might lose out, follows with his “special sale.”
- Customers sit it out and buy when prices are so low that it is worth buying, even if the product is not so great.
So Now We Have the Tiny Price Tags
In theory, customers are the winners. In real terms, wages have not increased for several years now, so paying less for clothing should help.
In reality, these are the side effects:
- The quality of apparel has consistently dropped.
- Disposable fashion is not a savings. Customers spend more buying several cheap items than if they bought better quality, longer-lasting garment.
- Over-production generates a strain on resources and an increase in waste; about 80 percent of the apparel made ends up in landfills, according to the Environmental Protection Agency.
- The race to the bottom is not helping anyone. No investment in product development is possible. When the only thing that matters is price, people stop investing and trying to make better things.
- Whenever we buy something that has a price too good to be true, we know that someone along the supply chain was not paid a living wage. Nobody really wonders how some companies can possibly sell so cheap, and nobody really cares enough to ask the right questions.
What is the solution?
Is there one? Maybe the massive store closures that we are witnessing will make the surviving brands reconsider how they operate.
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- I understand that France, for example, is considering a new law to impose MINIMUM retail prices for clothing. It may be a start, even though I suspect that in many cases the increase will just fatten the retailers’ margin and will not find its way back to the supply chain.
- It would be nice if brands – and retailers – tried to focus on their core competencies and their strengths, instead of trying to be everything to everyone. They have lost their originality and, by and large, their reason to exist; when every store sells the same product, how do you differentiate yourself?
- Instead of blaming their demise on online business, they should try to understand it and embrace it; online options EXPAND on a retailer’s capability to reach the market and, in many cases, streamline logistics and distribution; the store of the future will have to carry much less merchandise in the physical store, and fulfill orders online.
- Stop looking at the F.O.B. cost of goods alone when making sourcing decisions; the real cost of your goods is determined by how much you have leftover at the end of the season. In many cases, apparent savings are wiped out by long lead times and dead inventory. A healthy mix of domestic and offshore sourcing can go a long way.
- STAND FOR SOMETHING; when customers resonate with what you are communicating, price becomes less of an issue, and they will support their brand/retailer.
- Stop assuming that all customers are stupid and they only understand low prices; people can appreciate real quality and can justify spending a little more if/when it is perceivable. Give people options.
- Learn from Enzo Ferrari; if he knew that a specific model could sell 1,000 units, he would make 999. No need to flood the market; once people know that it is either now or never, they will not wait for a sale!
- Go for individual customization; people feel more special and do not return personalized goods.
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All we need is a few brave ones to start reversing the madness and the other ones will follow.
About the author: Stefano Aldighieri, President, Another Design Studio 2.0 which provides consultantcy in marketing, strategy and creative direction and previous experience at global companies – Hudson Jeans, 7 for All Mankind, Levis, Courtaulds and more.
( As published on LinkedIn. Republished here with permission of the author.)