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Pressure on to push up prices

After years of deflation, prices on the high street are creeping up as the financial crisis bites

Over the past decade one of the most enduring trends on the high street has been price deflation. Fast and inexpensive fashion has become a fact of life for consumers used to being able to grab the latest looks at throwaway prices.

The rise of value fashion has seen some of the biggest success stories of recent years with the likes of Primark, New Look and the supermarkets establishing cut-price clothing offers.

Retailers have been working with ever tighter margins to keep pace with the intense competition on price. But the global financial crisis has skewed a lot of the economic dynamics that made the rise of the value retailer possible, and now manufacturers, brands, retailers and consumers are all feeling an unprecedented pressure on finances.

The dramatic changes in the value of currencies, most notably the weakness of the sterling against the dollar and the euro, have meant that in the space of just a few months, suppliers and retailers have seen the cost of buying product - retailers typically buy in dollars from the Far East - rise significantly.

Counting the costs

Wholesale brands are now grappling with how much of the hit they can absorb, or whether they will be forced to pass on the increased costs to retailers, who in turn are considering price increases on the shop floor.

However, prices across the board are already creeping up. As figures from retail market research firm Compability show, the price of a typical shopping basket across seven of the major high street retailers is already higher than a year ago. It is the value retailers Primark and New Look, and department store Bhs, whose prices have risen most, up 4% on last spring. Average baskets at Marks & Spencer and Next are up 2%, while department store Debenhams is up 3% and womenswear chain Dorothy Perkins is up 1%.

The prices of several items have gone down across the board, including some denim, such as flared or bootcut jeans, and tea dresses, while prices of key fashion pieces such as pencil skirts, skinny jeans and macs are up at most retailers. Although the increase is relatively small, industry experts believe it is a sign of more significant price increases to come later in the year.

Compability research and audit manager Stephen Clarkson says: “The pound has devalued significantly, but much of that will have happened after retailers bought the stock that is in stores now at still favourable hedging rates. However, as we move into the second half of the year, retailers will be more exposed to currency values and this will be reflected in higher prices. In the autumn there will be a real pressure on prices. Retailers know that trade isn’t going to bounce back quickly.”

However, retailers and consumers could be on a collision course as shoppers’ appetites for lower prices and discounts have only sharpened with the recession.
Last Christmas and New Year saw an unprecedented level of discounting on the high street as retailers offered price cuts of up to 75% in a desperate attempt to get shoppers to part with cash. Figures from the British Retail Consortium said that the resultant rise in January retail sales was a “discount-driven blip” which ended in February when sales dipped 1.8%.

However, shoppers still want a bargain and earlier this month House of Fraser, Debenhams and Bhs all slashed prices in discount promotions, mostly on new-season stock.

Raising prices now means retailers will be in a better position to offer more attractive discounts and other promotions later in the season because of margin gains.
The price increases will also help offset an expected reduction in sales, according to Clarkson. “If retailers think that sales will be down 5% year on year, they might be looking to push margins up by a percentage point or two. Retailers will change the product design, change the wash of the denim or find other ways to add a little value to justify the increase.”

2008 vs 2009

Skinny jeans

  • New Look £15 to £20
  • M&S £19.50 to £25

Lightweight mac

  • Debenhams £35 to £40
  • Dorothy Perkins £45 to £50
  • Next £60 to £65

Floral dress

  • Primark £10 to £13
  • New Look £22 to £25

Pencil skirt

  • M&S £15 to £25
  • Dorothy Perkins £20 to £25
  • Bhs £18 to £20

Nautical T-shirt

  • Primark £1.50 to £2
  • New Look £7 to £10
  • Debenhams £7 to £16

Polyester blouse

  • Bhs £14 to £16
  • New Look £16 to £18

Source: Compability

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