World of Fashion
Sales Price Hikes: Silver Bullet or Hazardous Balancing Act?
by Yvonne Heinen-Foudeh, Senior International Correspondent
McKinsey (see the summary of their The State of Fashion report for 2023 in this issue) confirms what all of us already empirically knew based on significant survey results: the focus on costs has reached a new high at the start of the year - also in the fashion industry. Every decision on investments and operating expenses is under scrutiny. A quick return on financial expenses is the expectation - for all types of expenses - and especially for investments. The concern is that challenging medium- and long-term issues will once again be postponed.
Well-understanding absorption of further increasing costs is not an option in particular at the end of the retail chain. Nevertheless, we have our doubts that passing on additional costs to the end consumer with price increases of 10 or even 15 percent for private labels will work, as the first clothing chains (at least in the EU countries and the UK for example) are planning. As a silver bullet, this strategy (if it is one at all) is certainly not good enough, especially in times when consumers are cutting back significantly on non-essential spending. As – guess what – the inflationary cost trend has long since hit, not only households in precarious circumstances but increasingly the middle classes in most economies.
The reorientation of more consumers towards discounted goods, re-sold clothing, and purely demand-oriented apparel purchases is the even lesser risk here. Waiting for the reliable red pencil actions at the end of the season, when the pressure on stocks grows - smart shoppers are already practicing this trained strategy to excess. Without a doubt, it's important to avoid cutting back on consumption and falling back to even lower ranks of desirability in the face of overfull closets and stiff competition with other consumer goods (home/furnishings, consumer electronics, travel/holidays, etc.) should be avoided without question, shouldn’t it?
The call for the right product at the right time in the right place at the right price is timeless and as old as the industry itself. In 2023, however, technology supports the creation and production of apparel goods that are in line with trends and demand, and that can be calculated at market-conforming prices.
Without question, it is the use of technology that will determine how the fashion industry overcomes obstacles and meets the challenges ahead. Setting priorities and deciding on the right investments are unquestionably difficult undertakings in times of economic slowdown. IT and OT (Information Technology and Operation Technology) along with increased AI (Artificial lntelligence) are all used to support and optimize customer relationships, inventory, and stock levels as well as to stabilize the supply chain. All of these point to the primary ways to secure the future of companies.
These are the times to meet immediate, short-term challenges while at the same time following the long-term corporate strategy. This requires a large portion of agility on the part of the acting persons, combined with individual strategies tailored to their own possibilities: COURAGE – a crisis-proof spirit on the part of the entrepreneurs – just as it always has been.