By Alexandria Sage
LAS VEGAS (Reuters) - Every day, the general
manager of the Umgee USA apparel brand receives price quotes
from Chinese vendors who stitch his trendy dresses and tops
that end up at stores from Forever 21 to Macy's
"Some of it is more expensive over there!" said Stan Park.
"Every day I get an email from China saying 'This costs so and
so.' It's just not worth it!"
Park and others have solved the problem of rising sourcing
costs from China by making much of their product domestically
in hubs like Los Angeles. But for larger brands that require
the big volume that only China can supply, rising prices are a
"Apparel prices are going to go up. It's as simple as
that," said Perry Ellis Chief Executive George
Feldenkreis, who said a rise of up to 10 percent will be seen
next year. "The American consumer will have to accept it."
That is hard to swallow for retailers big and small, who
have been battling erratic sales trends this year amid high
unemployment and lingering financial insecurity.
Finessing price strategies were top of mind this week for
vendors and retailers at the Magic apparel trade show in Las
Vegas, where buyers place orders for the newest styles.
"Because the economy hasn't quite gotten back on track, we
can't raise our prices quite yet," said boutique owner April
Bullock. "It's still a little scary for us -- we're not sure
what the future holds."
Lower prices across the apparel spectrum have been one of
the most visible effects of the financial downturn. Luxury
department store Saks now offers more mid-priced goods,
while Aeropostale has outperformed its peers in the
teen sector due to its low prices.
Elan Savir of the Elan USA line said he has wanted to "make
nicer stuff," but knows a more expensive price tag will turn
off key customers like Nordstrom, which depend on him
to fill a niche for fashionable yet inexpensive products.
"They're looking for stuff they can put in their stores for
$49 and $59," Savir said, showing off a draped T-shirt that
sells at wholesale for $12.50.
GLOBAL SOURCING SUFFERS
Companies' ability to wrest profits out of their global
sourcing this year has suffered on multiple fronts, from a
spike in cotton prices to higher labor costs and worker
shortages, fewer ships available to transport containers across
international waters and most recently, flooding in Pakistan.
Given these pricing pressures -- Park sees prices from
China up 15 percent from last year -- brands are collaborating
more closely with suppliers to reduce "sticker shock" for the
consumer, retail-watchers said.
"It's heavy logistics planning. They know prices are going
up so they need to take out costs in order to prevent that rise
in prices," said Tony Ward, a principal with consultancy Kurt
Brands from giants like Nike Inc to smaller names
like Carole Hochman are working with fewer but larger and more
reliable vendors. Some are eliminating middle men to boost
margins, while others are trying to circumvent warehouses by
trying to deliver direct to stores, Ward said.
Offering longer-term contracts in exchange for price
reductions is one way to combat the inflation, said Peter
Gabbe, chief operating officer of Carole Hochman, a sleepwear
and intimate apparel company that licenses labels such as Ralph
Lauren and Jockey.
Some expect smaller suppliers to be eliminated as brands
consolidate their vendors. "The next three months will be very
bad for people with no clout," said Feldenkreis.
Eric Beder, an analyst with Brean, Murray Carret, explained
how Aeropostale's strategy of dealing with five main vendors
has been crucial in keeping prices low.
"You really are partners in that situation," Beder said.
"You can't walk away. They'll find some accommodation to keep
prices in check."
Localization, a strategy that has proved successful this
year for department store Macy's, is another way to make it
easier for vendors to fulfill orders. With smaller orders
deployed to specific stores based on geography and need, sales
can improve while inventory risk is lower, and less cash is
needed up front.
"That takes tremendous pressure off the sourcing people to
have to make it right from the first," said Ward.
One consolation for retailers is that many consumers may
not even notice an increase in prices.
"The myth people have is that consumers won't accept it,"
said Beder. "But because of trends, it's very easy to mask
price increases. It's not like milk where you buy it every
That means that last season's top with a new twist may look
different enough to justify a few more dollars in price.
Warnaco Group Chief Executive Joe Gromek told
analysts recently the company was "realistic about the consumer
and their willingness to pay more at this point in time."
"So we're just not going to raise prices across the board,"
he said. "But where we think that we have somehow done things
to create added value, then we will make the necessary moves."
(Reporting by Alexandria Sage; Editing by Michele Gershberg
and Matthew Lewis)