Cost increases have been experienced by practically every vendor of footwear and clothing products in the outdoor, athletic and casual markets over the past 12 months. More than 70 percent of them have decided to reflect the higher input costs in one way or another in the prices that they are charging to retailers for their fall/winter 2011-12 and spring/summer 2012 collections, according to a survey conducted among the subscribers to The Outdoor Industry Compass and its sister publications, including Sporting Goods Intelligence Europe and Shoe Intelligence.
One-third of the shoe brands that responded said they were sourcing more than 50 percent of their products from China. Only 20 percent of the footwear vendors and 5 percent of the clothing vendors said that the majority of their products were coming from European sources.
While the majority charged higher prices to distributors and retailers, only 21.5 percent of the shoe companies that raised their prices for fall/winter products did so for all the items across the board, but no less than 32.9 percent said they tried to avoid breaking psychological price barriers at retail. Only 6.8 percent said they had used different materials or components to preserve the same pricing on certain styles.
While cotton prices have eased up lately, the experts say that they will not go back down to historical levels for quite a while. Yet, only 3.33 percent of the suppliers of cotton shirts who responded to our survey raised prices for fall/winter 2010/11 merchandise across the board, while 33.33 raised them only for selected products and 36.67 percent said they were careful not to break psychological barriers. Only 10 percent changed materials or components. The responses were very similar for other types of clothing, where cost increases have been more moderate.
The responses for the various categories were somewhat similar with regard to the pricing of the spring/summer 2012 collections at wholesale: 25.2 percent of the shoe vendors said they were raising prices across the board, 32.7 percent are raising them only on selected items, and 33.6 percent are being careful to avoid breaking psychological price barriers. Only 8.4 percent said they were modifying materials. Evidently, vendors are generally using the same materials to preserve the quality of their products in order to justify any price increases.
At the OutDoor show in Friedrichshafen, many brands introduced new products at new price points, in many cases expanding their ranges at the high end or the low end, making comparisons with their previous price structure impossible.
Vendors of cotton shirts had a slightly different attitude on pricing for spring/summer 2012: only 16.2 percent said they were raising prices across the board, and 27.1 percent said they were careful about psychological price barriers. The trend turned out to be roughly the same for other types of clothing, but with 11.4 percent mentioning a change of materials to offset the cost pressure.
The average price increases passed on to retailers across the product spectrum vary widely from less than 5 percent to 20 percent, but the bulk of the participants in the survey mentioned price increases in the 5-10 percent range, irrespective of the type of product. One respondent said it had kept entry price levels unchanged and stretched them in the middle and higher price brackets. Interestingly, another one said it has upgraded its product range to protect margins with higher prices, while creating new products to match older price points.
Significantly, 31.0 percent of the shoe vendors admitted that they had lost some sales because of the higher prices that they had charged for their fall/winter collections, and 21.8 percent said they had gained some turnover on sales of products where they had kept prices unchanged. In the clothing segment, about 20 percent said they had lost sales or gained them depending on their price policies.
Overall, 37.9 percent of the shoe vendors who responded to our survey said they were going to look for new sources of production because of the higher costs that they were facing. In the clothing segment, more than 46 percent indicated imminent changes in sourcing.
The general trend was confirmed by interviews conducted at other recent trade shows, with interesting nuances and exceptions. Even at the mass-market-oriented Expo Riva Schuh fair in Italy last month, some suppliers decided to upgrade their collections in order to justify new price points.
Dealing in the low-margin volume business, Cortina of Belgium raised its prices for fall/winter by 10 percent, but last May it decided to reduce its prices by 5 percent for spring/summer 2012 because higher costs have been offset by a 15 percent drop in the U.S. dollar since one year ago. Another big trader positioned in a higher segment of the market, Sugi International, is keeping its prices unchanged for the spring/summer 2012 season because its higher sourcing costs in China have been offset by the phase-out on April 1 of the European anti-dumping duties on Chinese and Vietnamese leather shoes.
The European Commission has decided to place imports of these products under surveillance, but well-informed sources have told us that it has not witnessed any surge from the comparable levels of 2010 in the months of April and May. In fact, the rising cost of labor in China is leading many vendors and traders to seek out other sources of production.
Wage increases in Italy or Romania have been very soft lately, in contrast with the huge increases in China. This has led companies that make their outdoor shoes in Romania, such as Grisport or Lykos, to experience big surges in demand for their products.
The recent trade shows indicated new interest for well-made and creative items made in Europe, where workers' wages have not risen as much and where orders can be small.
The reactions of specialty retailers to the vendors' price increases have been mixed. In general, suppliers and retailers are still in a phase where they are “testing” new price points for certain products, and these tests are proving often successful with good branded products.
In several cases, suppliers said they were surprised by the retailers' general acceptance of the inflationary trends, especially on branded and highly publicized or innovative and unique products.