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Retailers are discovering the point at which higher prices mean falling sales.
Macy’s added $100 to the price of some mattresses and sofas and sales dropped.
Clothier Bella Dahl raised t-shirt prices by $20; customers stopped buying and the company rolled back the increase.
“There was a revolt,” chief brand officer Steven Millman told The Wall Street Journal. “If we go any higher, we’ll do half the sales.”
Retail prices have risen over the past 18 months and companies were confident consumers would accept the increases, as we noted in “Inflation Ripples Through U.S. Economy” (11 May 2021).
Now, that seems to be changing.
The rate of increase in consumer spending eased in February and, adjusted for inflation, fell (see related story in this issue).
Consumer sales have jumped 17.7 percent from February 2021 to the same month this year, the U.S. commerce department reported, but a significant portion of that increase is simply the fact that things cost more, not that shoppers are buying more stuff, the WSJ said.
The rise in consumer spending for gasoline and food is entirely due to inflation, according to research service GlobalData.
Apparel shops see customers turning away from glitzy brand names to lower-priced substitutes, the WSJ reported.
Unit sales—the volume of physical items consumers are taking home—declined in nine of the ten weeks from 26 December through 5 March, compared with the same period a year earlier, data service NPD Group said.
“We are seeing less demand as consumers pay higher prices,” Marshall Cohen, NPD’s chief retail adviser, said to the WSJ. “There’s a threshold that consumers don’t want to go over.”
However, that threshold seems to be in different places for different genders.
Prices for skirts are 31 percent higher than a year ago, while men’s pants cost only 8.6 percent more, according to market researcher DataWeave.
“Women tend to be more fashion-conscious and are willing to pay up for the newest styles,” DataWeave president Krishnan Thyagarajan told the WSJ.
Manufacturers are testing ways to keep prices low, ranging from using cheaper materials to skimping on finishing details, the WSJ reported.
However, not all markets are suffering.
Luxury brands have seen little deterring effect of higher prices among their well-heeled shoppers, the WSJ noted, and new wardrobes at higher prices can still draw shoppers.
Macy’s hiked the price of a $2,000 sofa to $2,200 and saw no loss of sales, but consumers refused to buy a $499 sofa when the price jumped $100.
Price hikes make luxury items seem even more desirable to those who can afford them, Luc Walthieu, a marketing professor at Georgetown University, said in a WSJ interview.
TREND FORECAST: With prices continuing to rise faster than wages, the consumer-centered U.S. economy is nearing the time when people will no longer be able to afford the latest i-Phone or weight loss plan.
Thrift will become a necessary virtue once again… as will being forced to shop at the Dollar Store.
While the U.S. GDP will shrink, but—due to scarce supplies and geopolitical upset—commodity costs will continue to rise for some time, throwing the U.S. economy into Dragflation, one of our Top 2022 Trends.