Average apparel prices will rise 10% to 12% in the second half vs. last year, predicts Stumphauzer.
How much of their higher costs retailers pass on will depen
d on what they think the customer is willing to
short ugg bootsabsorb, says John Long, a retail strategist at consulting firm Kurt Salmon.
Unique goods are key, says Joel Bines, managing director with AlixPartners, a consulting firm.
“Exclusivity is the only thing that creates pricing power in retailing,” Bines said. Tiffany sells largely exclusive products to customers that tend not to be price conscious, he adds.
Soaring material costs prompted the jeweler to raise prices in February 2010 and January 2011.
On silver jewelry and other items where inventory turns rapidly, cost hikes flow through Tiffany’s gross margins faster, requiring a “sooner price increaseuggs” than on slower-turning items, says spokesman Mark Aaron.
“All we want to do is maintain the gross margin on a specific product,winter snow boots and we believe our customers understand that,” Aaron said.
Pricing Power, With Limits
Tiffany knows it doesn’t have “unlimited pricing power,” he added.
Lululemon also lacks pricing omnipotence. Costs should pressure gross margins later this year, analysts say. But its strong profitability means it can afford to take a modest hit.
Meantime, analyst Christopher Svezia of Susquehanna Financial said, “Deckers has made select pricing increases on key products over the past several years in response to supply constraints of sheepskin and due to product mix, and it hasn’t affected sales.”
He added, “Ugg is very controlled in its distribution, their products are in demand and they continue to evolve the assortment. As a result, their pricing power is that much stronger to take it up if necessary.”
Svezia expects Deckers to hike prices again this year to offset higher sourcing costs