Fashion emergency: Prepare to pay more for clothes after the holidays

Clotheshorses already have Project Runway, but coming soon will be project runaway prices. That's right, once the holiday season is over, get ready to pay higher prices for clothes. Less competition among stores, rising labor costs in developing countries and inventory control mastered during this recession all mean retailers will be able to raise prices again and mark down fewer items -- at least until the boom-bust cycle starts all over again.

"The recession will leave behind this industry with far fewer players and new rules," said Richard Beckman, CEO of Fairchild Fashion Group, the publisher of retail bible WWD. At the recent WWD Apparel/Retail CEO Summit, one speaker after another urged retailers to hold off on markdowns and start bringing up prices.
The good news is, you won't have to worry about stores being out of the graphic t-shirt or cute skirt you want for Christmas or Hanukkah -- retailers are getting better at cranking out just enough merchandise when they need it.

But going forward, you'll pay more for what you want. Bankruptcies and cost-cutting have reduced competition as nearly every major retailer had to trim back new store openings or even close down stores. Some, like the department stores Gottschalks and Mervyn's, went under altogether.

The survivors are getting by thanks to leaner inventories and cost-cutting and are waiting for the rising tide. The turmoil of the last year brought out "terrific nuggets of information as we had to dig deep into our business" said Karen Katz, CEO of Neiman Marcus Stores, part of The Neiman Marcus Group. Stores had to learn to edit their selections and focus on how to sell more items at regular price to get by, she said.

And that is not a lesson retailers are about to forget, according to most merchants. The losses of last year are a sharp reminder to not to let inventory out of hand again.

"We have to stop these markdown cycles," said Katz. "We have to wean the customers from this deal of the day."

Saks (SKS) wants to eliminate "events" -- the upscale term for sales -- according to Ronald Frash, chief merchandising officer of Saks Fifth Avenue. He noted the store chain has already been reducing the number of brands it includes in its sales events. In fact, he said Saks has reduced the number of brands it carries altogether by analyzing data to figure out what sells and what doesn't.

And it's not just the luxury retailers that are reaching for the price scanner. Mindy Meads, president of Aeropostale (ARO), said her company has managed to raise prices a little recently and anticipates raising them some more. Ironically, Aeropostale has been beating the pants off of rival Abercrombie & Fitch (ANF) over the last year, partly by dropping prices while Abercrombie held fast.

Apparel prices are flat now, but the deflation cycle we've seen during this recession is coming to an end, said Bruce Rockowitz, CEO of Li & Fung (Trading) Ltd., a company that sources merchandise to stores worldwide. Rockowitz said the cost of producing apparel is about to go up and that will get passed on to stores.

"China was exporting deflation," said Rockowitz. But Chinese manufacturers cut back on staff during the recession and won't be able to build it up again that quickly. As a result, Chinese labor is about to get more expensive. And there are no production centers coming online elsewhere to compete with China's factories.

Meanwhile, consumers in that country -- nearly a billion strong -- will want their share of the goods they produce, noted Rockowitz. That's a lot of demand -- enough to keep prices stable at least.

Most experts figure these developments will shape the industry for the next year or so. But the experts also point out that consumers will do what they do best -- shop -- once they feel the economy is on an even keel. And shoppers like variety and excitement.

Although shoppers have reset their spending habits to look for value, the consumer looks for what's new and different, said Matthew Katz, managing director at AlixPartners, a business consulting firm.

Also, Wall Street pressures retailers to keep square footage growing, said Howard Tubin, director of equity research-softlines at investment bank RBC Capital Markets.

Both things add up to new "store concepts," or new chains. So the growth-and-overstock cycle will repeat eventually.

When that will happen is anybody's guess, though. As Matthew Katz put it: "We're all looking at how do we get through the next six months."

So in the short term, better take advantage of those sales. They may not be there much longer.
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