A new report by merchandising platform First Insight shows that price elasticity is decreasing across the apparel and accessories segments, creating an opportunity for retailers to raise how much they can charge. Compared to the company’s 2017 study, consumers are more willing to pay full price for footwear in both the men’s and women’s categories.
“Over the past two years, we have experienced a strong labor market, growth in disposable personal income particularly among millennials and elevated consumer confidence. All of that is creating an environment where shoppers are less sensitive to pricing across many retail categories and subcategories,” said Greg Petro, CEO at First Insight.
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According to the study, footwear responded particularly well to the shifts in elasticity. For instance, the men’s segment saw a slower rise in willingness to pay than women’s, with a dip in early 2018, which First Insight attributed to the lack of innovation and excitement in the sneaker market. However, price elasticity for the segment has continued to decrease from mid-2018 onward and the study shows that retailers have increased prices correspondingly.
Price adjustment is crucial for retailers in order to maximize sales without compromising revenue. But over-correction in either direction can also create negative effects: price too high and sales volume will be reduced; price too low and profit is undermined. Software from firms such as First Insight can help retailers target which products need price adjustments and in which direction.
“Our footwear testing has shown that 6% to 12% of items could bear a higher price than planned,” said Petro. “The inverse is also true: some styles won’t sell through at the planned initial ticket price. The challenge is knowing which styles those are, and adjusting accordingly.”
Footwear retailers have been some of the earliest adopters of price adjustment technology, with First Insight counting Caleres, Crocs, Wolverine Worldwide and Cole Haan among its customers. Although children’s footwear was the only segment to see a slump in consumers’ willingness to pay, the report shows that retailers have managed the risk well.
In a competitive and unpredictable retail market, being able to adapt quickly to shifting consumer behaviors is crucial. Not only can shoppers scour more e-commerce marketplaces than ever for deals, but broader political developments are impacting the cost of doing business. Adjusting product prices can offset some of the financial strain.
“This is particularly important in the face of the current trade wars and tariffs,” said Petro. “Knowing where you can pass along the increased cost of tariffs and where you need to absorb it is key for maximizing overall profitability.”
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