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Study: Price elasticity shifts offer opportunities, risks for retailers

BY Marianne Wilson

There is good news and bad news in a new report on price elasticity.

According to a report by First Insight, price elasticity is shifting significantly in several retail subcategories, creating revenue opportunities as well as risks for retailers may not be equipped to respond to these changes. The shift emerges as consumer behavior has rapidly evolved.

“Fast-moving industry trends such as aging baby boomers, growth in millennial spending power and migration to online shopping are having an impact on pricing and demand,” said Greg Petro, CEO of First Insight. “This shift is creating a disconnect for retailers and brands between what they’re charging, and what consumers would actually spend. Our new study unveils these shifts and offers insight into how best to price a category to meet demand, protect margins and avoid problems with excess inventory.”

The study, “Decoding Price Elasticity to Unlock Revenue and Minimize Risk,” examined pricing and price elasticity trends on more than 90,000 items processed through InsightSuite, the company’s predictive analytics platform. Key findings of the report include:

● Shifting shopping behavior drives new opportunities in swimwear, risks in everyday wear
Womenswear is seeing decreases in elasticity and represents opportunities for retailers to maintain or increase prices, particularly in swimwear where shoppers are becoming less concerned with price.

Conversely, frequent purchases such as women’s outerwear, accessories and tops are seeing a jump in elasticity. These trends are consistent with the maturing womenswear market, as older shoppers are buying fewer items and cash-strapped millennials, who are drawn to fast-fashion brands, are driving greater elasticity on everyday purchases.

● Menswear largely well managed, but increased prices in underwear possible
In Menswear, sales are increasing according to recent U.S. Census data, and retailers have been effectively balancing price with increasing elasticity overall. However, significant shifts in subcategories remain, as elasticity in underwear is falling, creating an opportunity for retailers to increase pricing. Bottoms, in contrast, continue to become more elastic as pricing increases and retailers need to take note to avoid overstocks due to decreases in sales.

● Childrenswear shows opportunities to increase prices in sleepwear but be cautious of high-priced bottoms
Research shows that while overall sales of childrenswear are falling, some brands and retailers are seeing significant growth. This is in line with First Insight’s report which found that elasticity is falling along with pricing. Sleep/loungewear in particular has shown declining elasticity as well as falling prices, which makes it primed for price increases. However, not every subcategory represents opportunity. In the bottoms category, for example, where elasticity and pricing are both increasing, retailers need to be wary of buyers’ diminishing appetite for higher prices.

● Consumers becoming more sensitive to home goods price changes, particularly in furniture
The home goods category, traditionally the least elastic, is seeing a significant increase in elasticity as buyers become more sensitive to price changes, consistent with the increasing numbers of cost-conscious Millennials who are buying and furnishing their first homes. However, prices in the category have been rising, representing a risk to retailers if continued price increases result in fewer sales over time.

“Offering the right product at the right price is a key determinant of the success or failure of retailers and brands in today’s shopping environment,” Petro concluded. “Retailers able to meet shoppers at the intersection of price and elasticity have the greatest opportunity to increase sales and revenues with the least amount of risk.”

 

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