Some fashion retailers may be hard pressed to lower prices to bring back consumers

If almost all of your recent conversations with friends seem to end with, “Everything is so expensive,” you’re not alone. But while consumers are certainly feeling the pinch of rising costs these days, so are retailers.

And fashion brands like Zara have responded by hiking prices, which means passing the costs along to shoppers. But weeks after companies like Macy’s and Foot Locker cautioned the market about weak consumer spending, questions around whether fashion retailers should consider cutting down on prices have arisen.

“We have seen a gradual, steady increase in our Price Sensitivity index for apparel over the past year, suggesting consumers are gradually becoming more willing to walk away from potential clothing purchases because of higher prices,” Kayla Bruun, senior economist at Morning Consult, told Retail Brew in an email, explaining that although apparel prices, for instance, haven’t gone up as much other products, they’ve been on the rise for several years which has made consumers weary of the higher costs for discretionary purchases.

And while luxury remains somewhat insulated from consumers cutting back on spending given the aspirational nature of the brands and a smaller pool of loyal customers, fast fashion retailers could face challenging times ahead.

“In economic downturns, the middle tier feels the squeeze most,” Benjamin Bond, principal in the consumer practice of Kearney, told Retail Brew via email, adding that fast fashion will see smaller baskets while department stores and specialty retailers will need “to brace for the most significant impact.”

But how exactly does this translate IRL, and where will we see the impact?

“Apparel purchases can either be essential—like a new winter coat for a growing child—or discretionary,” Bruun said. “For essential purchases—when you really need a new clothing item—consumers are more likely to trade down to a cheaper alternative. For discretionary purchases, they are likely to simply opt out of making the purchase if the price is more than they want to pay.”

An alternate solution: While most fast fashion or middle-tier brands are likely to see some effects if they keep prices high, it does not mean there are no other solutions.

Michael Olaye, SVP of strategy and innovation at innovation consultancy R/GA, suggests offering discounts and reduced prices as one approach to tackle lowering consumer spending.

“Retailers continue to find new ways to keep their customers front of mind when they shop—and nothing is more impactful than cost reductions—alongside free shipping and returns,” he said via email.

Kearney’s Bond agreed, adding that “targeted promotional activity” could help navigate softer business areas.

Meanwhile, Aaron Sorensen, partner, chief behavioral scientist, and head of business transformation at Lotis Blue Consulting, believes dynamic pricing could be an effective strategy.

“Given the level of uncertainty in the economy and dynamics of the consumer, the best strategy will be to dynamically manage price, discounting, and inventory more closely than ever before,” he said. “[For example,] Zara is targeting the consumer who’s more likely to feel inflation, being agile and responding to economic indicators and consumer behavior is key.”

Final word: And while all these suggestions might work well for a lot of brands, it’s also important to remember that not everyone is on the chopping block if they keep their prices intact.

“There’s evidence of resilience in cosmetics and clothing brands that draw the TikTok and Instagram generation,” Sorensen said. “Those retailers and brands who are able to find ways to hook into the dopamine-driven pleasure cycles of the brain can maintain higher prices as they have become compulsions. Brands like Lululemon and Kendra Scott are examples of this. They will continue to do well as the rational and utilitarian part of the consumer psyche gets crowded out by the pleasure centers that ‘have to have’ what they see on their smartphone.”