The United States seems to be winning the war against inflation.
On Wednesday, the US Bureau of Labor Statistics reported that consumer prices rose 3% in June, the lowest pace in more than two years. Inflation had exceeded 9% last year.
What is even more remarkable is that this figure was brought down without the usual pain that accompanies anti-inflationary measures. The Federal Reserve has raised interest rates 10 times since the spring of last year, which normally triggers business closures, job losses and a sharp drop in consumer spending as loans become more expensive. Other countries have not been so lucky; In the UK, inflation has been more difficult to dampen, leading to a higher than expected recent rise in Bank of England interest rates.
Return to the United States. Although thousands of people were laid off by tech companies that could no longer afford their debt-fueled growth strategies, unemployment in the United States remains near a 50-year low. Consumers continue to spend too: in May, retail sales unexpectedly increased by 0.4%. A dreaded recession has yet to materialize.
Still, the fashion industry had to make difficult adjustments, first to the period of high inflation – the first of a generation – and then to the aftermath.
Clothing and accessories store sales increased slightly in the first quarter of 2023 from a year earlier. At the same time, part of the reason is that these retailers have raised prices more aggressively than other sectors of the economy this year, according to the BLS.
But it is also true that American consumers continue to buy shoes, dresses and pants, even if they are more expensive. The high prices may also represent a broadening of the pandemic trend where luxury brands, capitalizing on booming demand and supply shortages, have been able to repeatedly raise prices.
On the contrary, the situation has reversed: US luxury spending is slowing, with some of the biggest players in the category warning for months that they can no longer count on spendthrift Americans to fuel growth. Burberry is the latest brand to feel the absence of “ambitious shoppers” – or those who have shopped “up” during the pandemic thanks to increased savings. In the US market, it saw an 8% drop in the first quarter of 2023.
At the same time, the wages of low-income workers in the service and retail sectors are rising, giving them more purchasing power. Wage growth for low-income workers has exceeded that for high-income workers. Citing data from the Federal Reserve Bank of Atlanta, a recent Wall Street Journal report found that the 12-month moving average of monthly wage growth for those in the bottom income quartile was 6.8% in May and 5.6% for the workforce in the top quartile.
The question going forward is what all this upheaval means for fashion award show addiction.
It’s hard to ignore this summer’s ubiquitous sales and promotions, especially with Amazon Prime Day just ending. But at least some of these markdowns mask an overall price increase. Retailers were able to charge more, even at 40% off, without pushing their customers away.
The average price of a pair of shoes last July was $108; this year, it costs $113, according to data from retail intelligence firm Edited. Accessories went up again, from $78 to $96. Across both Prime Days this year, shoppers enjoyed an average discount that was 15% lower than last year’s event, according to Salesforce data. But overall sales hit another record high, up 6.4% from a year ago, according to Adobe Analytics.
Whether these prices translated into higher long-term profits remains to be seen. Nike, for example, saw sales increase 5% year over year during its last earnings cycle, but its gross margin fell due to rising material and logistics costs, which shouldn’t go down anytime soon.
For now, retailers can take advantage of the good news that the US economy is much more robust than experts predicted just a few months ago. The Fed will likely raise interest rates again this year in hopes of hitting its 2% inflation target. But the likelihood of a recession has fallen significantly, while consumers seem broadly indifferent to rising fashion prices. And that is reason enough for cautious optimism.
NEWS IN BRIEF
FASHION, BUSINESS AND ECONOMY
Burberry’s sales in the United States fall as ambitious demand weakens. Declines in the United States were offset by the resumption of Chinese spending, as total same-store sales for the quarter rose 18%.
Francois-Henri Pinault is in talks to buy talent agency CAA in a $7 billion deal. The luxury mogul is in advanced talks to buy a majority stake in Creative Artists Agency, according to people familiar with the matter, potentially adding another international trophy to a French billionaire’s portfolio.
Report: Kim Kardashian’s Skims Targets $4 Billion Valuation in New Funding Round. Investment firm Wellington Management is in talks to lead a new funding round for Skims, which could value the Kim Kardashian-owned underwear company at around $4 billion, people familiar with the matter told Reuters.
Uniqlo owner Fast Retailing raises guidance as operating profit rises. Profit rose to 330.6 billion yen ($2.38 billion) from 271.1 billion yen a year earlier. The company raised its full-year profit forecast to 370 billion yen from 360 billion yen.
Chanel-backed traceability company raises $57 million. Oritain has carved out a leadership position by helping brands and the US government trace the origin of raw materials such as cotton, coffee and leather. Investors are betting that tighter regulation will spur growth.
Luxury jeweler Bulgari is under fire in China for listing Taiwan as a separate country on its website. Bulgari, which is owned by luxury conglomerate LVMH, apologized on its official Weibo account, saying the error was due to mismanagement and that it “respects China’s sovereignty and territorial integrity”.
Nike faces Canadian investigation over alleged use of Uyghur forced labor. Nike has previously refuted allegations that it benefits from forced labor, saying it does not source products from the Xinjiang Uyghur Autonomous Region and has “confirmed with our contracted suppliers that they do not use no textiles or spun yarns from the region”.
Inditex bolsters sustainability commitments as regulators target fast fashion. The Zara owner outlined plans to expand resale and increase its use of next-generation and recycled materials, as part of efforts to reach an updated target to halve emissions by 2030.
Fashion brands retain key data on environmental and social sustainability. The industry is becoming more transparent, but big brands are still failing to disclose critical information about their environmental and social impact, according to this year’s Fashion Transparency Index.
The Vampire’s Wife settles with the taxman and avoids liquidation. The brand said its debt settlement was funded by existing investors.
Swatch sets new half-year sales record citing lifting of Covid curbs. Net sales reached 4.019 billion Swiss francs ($4.64 billion), up 18% from a year ago and marking a new half-year record.
THE BEAUTY BUSINESS
Kering paid $3.8 billion for Creed. The French luxury group made the acquisition in June after announcing plans earlier in the year to set up an in-house cosmetics business.
Kim Kardashian in talks to buy beauty company stake from Coty. The value of the stake has not been determined and talks could break down, the report said, adding that Kardashian wanted to buy it out as part of an effort to expand SKKN’s beauty categories.
Israel’s Oddity Tech seeks to value up to $1.7 billion in US IPO. The company aims to price its shares between $27 and $30 each to raise up to $315.8 million.
Revolution Beauty says it could settle with shareholder Boohoo in coming days. The beauty company said it would hold a general meeting on August 7 after the British fast fashion retailer urged the company to fire executives including CEO Bob Holt. According to a report by Sky News.
Mielle Organics Becomes WNBA’s First Textured Hair Care Partner. The brand is expected to launch the new partnership on Saturday at the WNBA All-Star Game in Las Vegas.
Tod’s creative director Walter Chiapponi steps down. Italian luxury fashion group Tod’s said on Wednesday that creative director Walter Chiapponi was leaving the company “by mutual consent” after four years.
MEDIA AND TECHNOLOGY
Amazon Prime Day pushes all online sales up 6.1%, estimates missing. U.S. shoppers spent $12.7 billion online during Amazon.com Inc.’s 48-hour Prime Day, up 6.1% from a year ago but below estimates of 9.5% growth, according to Adobe Inc.
Temu sellers copy entire storefronts from Amazon, lawsuit claims. Although the site is known to sell fake and counterfeit products, in some cases Temu sellers have copied product photos, descriptions and keywords directly from the original Amazon listings.
Ssense launches an AI-powered personal style chatbot. Ssense has a new generative AI chatbot to help users with style and shopping questions, but unlike other AI chatbots launched by major fashion retailers, this one integrates directly into ChatGPT.
Compiled by Joan Kennedy.