Study: Retailers have opportunities to raise prices to offset impact of tariffs

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Study: Retailers have opportunities to raise prices to offset impact of tariffs

By Marianne Wilson - 10/03/2019

Price sensitivity by consumers is falling, giving retailers the opportunity to offset the potential impact of tariffs by raising prices.

That’s according to recent price elasticity study from First Insight, which found that elasticity and price sensitivity are falling in every category, including womenswear, menswear, children’s wear and home goods when compared to its previous 2017 study.

First Insights’ “Decoding Price Elasticity: Emerging Opportunities” study examined pricing and price elasticity trends on hundreds of thousands of items processed through InsightSuite, the company’s predictive analytics platform, which enables retailers and manufacturers to effectively select, price, market and buy new products with no sales history.  

“Retailers must keep pace with changes in elasticity of demand across every subcategory to maintain solid profit margins and achieve financial goals, particularly when facing product cost increases due to tariffs,” said Greg Petro, CEO of First Insight. “Our latest Decoding Price Elasticity study reveals insights into product categories and offers retailers and brands visibility into how best to price a product to meet demand, protect margins, maximize profits, minimize risks and avoid problems with excess inventory, particularly as retailers consider ways to offset the potential costs of tariffs.”

Key findings of the study include:
•    New opportunities in womenswear to increase prices in dresses, sleepwear, outerwear, bottoms, tops and lingerie: Womenswear is seeing continued decreases in elasticity overall and represents opportunities for retailers to maintain or increase prices.  While in subcategories including handbags, swimwear, footwear and jewelry, retailers have been increasing prices in line with demand, opportunities for price increases exist in sleepwear, outerwear, bottoms, tops, lingerie and dresses, where retailers have been lowering prices. 

•    Menswear shows opportunities for price increases in outerwear and accessories, but may need to reduce pricing in men’s tops: Menswear sales continue to grow as men take an increasing interest in their outward appearance and specific fashion trends and brands, according to a recent Euromonitor study.  While retailers are increasing prices in line with falling elasticity across footwear, bottoms, and underwear categories, pricing has been falling in outerwear and accessories, where shoppers are less price sensitive.
 
Also, the price for men’s tops has been rising, where these shoppers are more price sensitive. Retailers should consider reducing the price of these items in order to avoid a decrease in sales and potential overstocks.

• Children’s wear is relatively well-managed by retailers, but shows opportunities to increase pricing on tops: As many parents, specifically millennials, wait until later in life when they have more disposable income to have children, they are less concerned about pricing when purchasing clothing for their children. This is driving down elasticity across almost every children’s wear category. Retailers have largely aligned with these trends, as dresses, sleepwear, and bottoms show increasing pricing. 

Footwear, which shows a significant rise in price elasticity when compared to the previous report, is also well managed as retailers have been responding with lower prices.  The one poorly-managed exception is in children’s tops where pricing elasticity is falling, and retailers are decreasing prices, representing an opportunity for retailers to capture greater revenue.

• Pricing sensitivity drops across most home goods categories, with opportunities to increase pricing in decor and textiles: Elasticity has fallen significantly across every home goods category with the exception of housewares, according to the study. While in furniture, where retailers are increasing pricing in line with falling elasticity, retailers are incorrectly dropping prices in decor and textiles categories as elasticity falls. In housewares, where elasticity continues to rise, retailers are better managing this risk when compared to the previous report, and are lowering prices in line with consumer expectations.

The full report can be downloaded here.

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