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At a pop-up shop in Los Angeles early in November, Marysia Woroniecka, chief executive of the Zero + Maria Cornejo fashion label, gestures toward a rack of luscious merino wool and cashmere knitwear.
In the months between the design and manufacture of the New York brand’s autumn collection, the knitwear range had seen a storm of supply-side pressures that forced her to re-evaluate the label’s pricing strategy. There was a 15 per cent import duty left over from the Trump Administration, wild swings in shipping costs, starkly rising prices for yarns, ocean transport delays that forced the brand to ship by air, and inexplicable delays in a South Florida customs warehouse.
From clogged ports to raw material shortages, the list of challenges for global supply chains is relentless. Luxury fashion is not immune from the fallout.
Rather than pass those costs along to customers, the brand decided to shrink profit margins on some expected bestsellers, hoping to keep clients loyal. “This whole group should be 20 per cent more expensive,” Woroniecka says grimly. “Costs have rocketed up and speed has ratcheted down.”
Pricing collections is always a balancing act. This summer and fall, the process became more precarious as brands tried to guess at how much consumers might be willing to absorb, factoring in higher manufacturing and shipping costs. Much of the pricing pressure is hitting stores with the autumn collections, and brands are scrambling to determine which factors they must address first as they navigate the tricky production cycle.
Adding to the pressure are predictions of surging holiday season sales as consumers release their pent-up demand. Brands want to have fully stocked shelves. “The old adage ‘cash is king has been replaced by ‘inventory is king’,” says Eric Best, founder of Sound Commerce, a Seattle-based retail data platform. “If you have access to inventory, you have a competitive advantage.”
The impact of rising costs
Costs are rising in every corner, hitting domestic production as well as imports in the US. American Giant, a maker of premium casualwear that produces almost entirely in the US (it imports merino wool yarn), has seen the cost of factory labour rise by 10 to 15 per cent this year and the cost of cotton leap by roughly 280 per cent, says chief executive Bayard Winthrop.
Cost pressures contributed to Farfetch missing Wall Street analysts’ third quarter earnings estimates. In response, the retailer lowered its 2022 earnings expectations.
No clear formula is emerging to guide brands as they decide where to raise prices and when to shrink margins. Navigating the new cost frameworks can reward the nimble-footed. Data analytics provider First Insight and the Wharton School of Business recently published a survey that revealed that 98 per cent of retail executives expect supply chain disruptions to negatively affect the holiday shopping season. One-third of the executives suggested that they would absorb increased costs to keep prices steady. Fifty-nine per cent expected to pass higher costs on to consumers.
At American Giant, Winthrop says he’ll raise prices on apparel where margins are already thin, while holding steady on items where there is “wiggle room”, like the company’s lightweight leggings. “We’re not going to do this across the board,” he says.
Will luxury consumers accept price rises?
For some luxury and aspirational brands, consumers appear to be willing to absorb the higher costs. Shares in Capri Holdings, owner of Versace, Michael Kors and Jimmy Choo, soared early in November after the company said consumers continue to shop despite higher prices and revealed its third-quarter earnings jumped 17 per cent over the year earlier.
“We are not seeing price resistance,” says Lana Todorovich, president and chief marketing officer of Neiman Marcus Group. “Customers are shopping and they’re willing to pay more for brands.”
Todorovich notes, in fact, that sales of merchandise at full price are rising among a concentration of popular brands — sales of the department stores’ top 20 brands are up 49 per cent this year versus before the pandemic, and they tend to come from loyal customers. Nearly half of its sales are repeat clients, who spend 20 times more than those who don’t have a regular relationship with Neiman Marcus, she says.
For brands, though, this is a tightrope of guessing whether customers will be open to higher prices or will shift their shopping elsewhere.
That’s a primary consideration at Zero + Maria Cornejo, which sells both wholesale to multi-brand and department stores, and direct-to-consumer at its own stores and online. The cost of shipping fabric to its US factories has risen so much that the cost for shipping two imported denim fabrics was recently almost as much as the cost of the raw textile.
For a capsule collection that features prints from the New York guerilla-knitter artist Magda Sayeg — known for her giant crocheted balls — Zero + Maria Cornejo dropped six of the planned 45 styles because they proved too expensive. The brand swallowed smaller profit margins on some more basic styles, while letting its most editorial looks bear the full weight of supply-chain price increases.
“It was a very very tight collection,” says Woroniecka, who considers the discipline imposed by the higher costs as ultimately being good for the brand.
This has also caused Woroniecka to reconsider business transitions, such as annual resort collections and designing for seasons that don’t coincide with weather patterns. The label is now delivering lighter weight clothing in spring and summer months — rather than mid-winter. Coats arrived in September.
When a staffer refers to the latest capsule as “resort”, Woroniecka quickly corrects her. “Don’t call it resort. Just capsule,” she says, noting that she wants to move the brand away from seasonal fashion-industry lingo.
Going forward, Zero + Maria Cornejo will limit discounting to twice per year, more along the timing that is common in France (where sales are overseen by the government). Rather than launching sales on Memorial Day, the brand will go on sale in July, just in time to empty shelves for the fall collection. Thanksgiving week sales will be replaced by January timing. “We’re taking a stand, that’s what we’re doing,” says Woroniecka.
The strategy means that the label can lower some of its profit margins at full price, knowing that fewer items will be sold at a discount later. Woroniecka hopes this will also build a more trusting relationship with consumers.
“I think that people will, hopefully, get it,” she says, glancing once more at the rack of capsule collection items.
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