It’s official: Prices are rising, and it’s likely they’ll remain higher than usual in the months to come.
Today, the Department of Labor reported that the consumer price index — a measure of the change over time in prices paid for consumer goods and services — jumped 5% last month from the prior year. Economists had anticipated an increase of 4.7%. It also marks the largest advance for the figure since the 5.3% gain in August 2008, just before the last financial crisis struck the United States economy.
In recent weeks, a number of major brands and retailers have announced in their earnings calls that they have begun or plan to raise prices. According to experts, a couple factors are at play: one, related to higher material or logistics costs; and two, in regard to lower promotional activity that took place in the quarter.
At the end of April, Steve Madden CEO Ed Rosenfeld indicated that customers should prepare for a “modest” increase in average unit retail, “particularly because of the strength of the product and the demand that we’re seeing from the consumer right now.”
Two weeks later, Wolverine Worldwide CEO Blake Krueger remarked that price increases have already occurred for rubber, cotton, leather and other components. While it has a “strategic approach” for each of its brands, including Sperry, Merrell and Saucony, the chief executive shared expectations for more costly goods for the spring ’22 season and the remainder of next year.
What’s more, Crocs saw its average selling price climb almost 8% to $17.64 in the first quarter — attributed to improvements in direct-to-consumer revenue and fewer discounts. Ugg parent Deckers Brands also noted in its quarterly call with analysts that its Fluff franchise, for instance, has been subjected to inflationary pressures.
“Most are selectively raising to offset [cost] increases coming,” explained Susan Anderson, senior research analyst and managing director of retail, apparel and footwear at B. Riley Financial. “It seems like brands and retailers have the wind at their back right now.”
However, despite the price hikes, consumers are still shopping. As the economy continues to reopen, many Americans armed with pent-up demand have headed out in droves — giving a much-needed boost to the retail sector, let alone the dining and travel industries. Plus, under the Biden administration’s massive $1.9 trillion American Rescue Plan, fiscal stimulus and unemployment benefits have left millions with a little more cash in their pockets to spend.
“There is excitement for many brands and types of items in the market now, and [this] has given brands and retailers the opportunity to reset and reduce promotions,” added Beth Goldstein, executive director and industry analyst of accessories and footwear at The NPD Group. “The question is: Can it last or will we fall back into the heavy promotional patterns later this year when inventory or supply starts to normalize and we head into the more competitive selling seasons?”
According to experts, the price hikes could be a sign that economic activity — restricted in large part over the last year due to pandemic-related precautions — is heading for a rebound. After all, central bank policymakers have suggested that the recent surge in inflation is only transitory and will likely settle back down to a measured pace following the U.S.’s recovery.
In an interview with FN, Footwear Distributors and Retailers of America chief economist Gary Raines predicted that the spike in prices could persist well into the fall. While money pumping into the economy has afforded them some room to raise prices, not all brands and retailers will equally benefit.
“With prices going up across the board, brands are forced to: One, be more innovative, and two, to control what they’re doing even better,” said Sam Poser, equity analyst at Williams Trading. “The companies that win here are those with the best CRM and best engagement, [plus] have the product to back it up.”