Why Global Pricing Strategy Matters in a Challenging Retail Environment
By Kayla Marci, Market Analyst at EDITED, a global retail intelligence company.
Recent events such as COVID and the war in Ukraine, combined with increasing inflationary costs and the shipping crisis have all had significant impacts on the global landscape for the fashion retail industry. It is more important than ever for brands, no matter large or small, to keep a finger on the market pulse and focus on what consumers want in order to make better informed pricing decisions, spot opportunities and trade more competitively in new spaces.
Here are 5 key considerations to help brands position themselves better within the global market or when entering new ones…
Macro Factors Matter
Worldwide markets are slated to experience continued economic fallout as inflation hits multi-decade highs and cost of business increases. Oil prices also continue to rise as a result of knock-on effect from the Ukraine war. Having full visibility of global pricing will better equip brands for future changes as we expect further increases to already soaring fashion price tags.
The longer-term impact to be expected with rising oil prices is an upsurge in the cost of petroleum-based fabrics like polyester, which is currently used in 40% of apparel in stock in the US and 32% in the UK (not counting recycled polyester). Meanwhile, cotton prices have remained stable amid the war but they’re still steeper than pre-pandemic levels according to our data.
It’ll become more difficult for brands to justify the argument that sustainable material alternatives are too expensive. Across all markets, there will be added pressure to explore natural, renewable and less resource-intensive fabrics, not only to benefit the planet, but to neutralise escalating prices.
Cost Of Living Vs. Cost of Apparel
When entering or expanding into new markets, it is wise to analyse what’s happening locally that can influence pricing. Consider the current competition and market values to determine how much consumers are willing to pay.
The graph below using EDITED data details the average price of a full women’s outfit – a t-shirt, trousers, jacket, sneakers, underwear, and a bag – on the mass market in two different regions. It’s plotted against Numbeo’s Cost of Living Index, which includes localised data on the cost of groceries, entertainment, transportation and accommodation for the most populous city in each market.
This analysis can unlock key pricing opportunities. For example, products are most expensive on average in South Korea, because of shipping costs and taxes of western brands. However, the average price of an outfit outstrips the Cost Of Living Index – suggesting consumers there may have more disposable income to spend on fashion and are more willing to pay full price compared to those in the US or UK. Brands entering this market may want to contemplate a higher pricing model than they would in their own region.
Pricing as a Brand
There are both risks and rewards with global pricing. It can potentially alienate shoppers who frequently compare international prices, but also be a driver in luxury tourism as travel reboots post-pandemic. Comparing the prices globally for the pink Jacquemus Le Chiquito long tote, currently selling at $755 on Mytheresa in the US, reveals a 20% increase to the equivalent in the brand’s local market, France.
That’s not Mytheresa’s mark-up but set by the brand, as evidenced by varying price differentials across all global outlets. This is not just limited to the luxury market. For any brands that wholesale on an international level, it is essential to maintain control over global prices through their own ecommerce stores and on how third-party retailers price their products.
Prices of pink Jacquemus Le Chiquito at global Mytheresa sites:
- US – $755.00
- UK – $612.81
- South Korea – $508.32
- Australia – $736.91
- Russia – $508.32
- United Arab Emirates – $681.49
- China – $688.70
- France – $601.86
What’s Selling Around the Planet
To further demystify what customers are willing to pay by region, brands should analyse the price points working well and where there is room to grow. Over the past three months, the greatest proportion of dresses selling out at mass market retailers in the US has been under $30. Japan had the largest percentage of sell outs between $60 to $100. In Australia, the same proportion of dresses sold out between $50-$60 as $30-$40, showing that brands can push into higher brackets in line with market inflation.
The Value of a Trend
Monitoring pricing shifts can reveal a trend’s status in localised markets to help adjust prices or products before consumers cool off altogether. The bigger the emphasis on lower price points, the more of a commodity the style has become. Looking at how leather trousers are priced across core regions, UK retailers command the entry price points, signalling the trend has hit saturation point in this market. Germany and France place a higher value on the style. To avoid deadstock issues, this information can help redistribute products to markets with greater demand. With leather bookmarked as the hottest trend for Fall 2022, this is something to keep in mind when planning future product drops and allocating styles across regions.
In challenging retail climates, it is important to be more elastic with your pricing than ever before. An understanding of the macro environment combined with data-informed geo-pricing strategy can help interpret what customers are willing to pay by region, analyse price points that work well and spot opportunities for markups rather than discounts.