NEW YORK--(BUSINESS WIRE)--Today, First Insight, Inc. the world’s leading technology company transforming how retailers and brands make product investment, pricing and marketing decisions, announced the findings of its most recent price elasticity study, “Decoding Price Elasticity: Emerging Opportunities.” Using proprietary data on the elasticity of demand over an additional two-year period, the new study found that elasticity and price sensitivity are falling in every category including womenswear, menswear, children’s wear and home goods when compared to its previous study published in 2017, unveiling many opportunities for retailers to leverage through increased pricing.
“Over the past two years, we have experienced a strong labor market, growth in disposable personal income particularly among Millennials, and elevated consumer confidence which is creating an environment where shoppers are less sensitive to pricing across many retail categories and subcategories,” said Greg Petro, CEO of First Insight. “This shift is creating many opportunities for retailers and brands, but there is still a disconnect in several subcategories between what they’re charging, and what consumers would actually spend. Our latest Decoding Price Elasticity study reveals insights into product categories and offers retailers and brands visibility into how best to price a product to meet demand, protect margins, maximize profits, minimize risks and avoid problems with excess inventory, particularly as retailers consider ways to offset the potential costs of tariffs.”
The study examined pricing and price elasticity trends on hundreds of thousands of items processed through InsightSuite, the company’s predictive analytics platform, which enables retailers and manufacturers to effectively select, price, market and buy new products with no sales history. The study examined data between September 2017 and April 2019, along with other proprietary sources, and draws comparisons to its original study in 2017, identifying categories where elasticity of demand may have shifted.
Key findings of the report include:
New opportunities in womenswear to increase prices in dresses, sleepwear, outerwear, bottoms, tops and lingerie
Womenswear is seeing continued decreases in elasticity overall and represents opportunities for retailers to maintain or increase prices. While in subcategories including handbags, swimwear, footwear and jewelry, retailers have been increasing prices in line with demand, opportunities for price increases exist in sleepwear, outerwear, bottoms, tops, lingerie and dresses, where retailers have been lowering prices. These trends are reflective of the growing spending power of Millennials as they mature into higher income positions based on a strong economy, and overtake Baby Boomers as the largest generation of shoppers in history.
Menswear shows opportunities for price increases in outerwear and accessories, but may need to reduce pricing in men’s tops
Menswear sales continue to grow as men take an increasing interest in their outward appearance and specific fashion trends and brands, according to a recent Euromonitor study. While retailers are increasing prices in line with falling elasticity across footwear, bottoms, and underwear categories, pricing has been falling in outerwear and accessories, where shoppers are less price sensitive. Further, the price for men’s tops has been rising, where these shoppers are more price sensitive. Retailers should consider reducing the price of these items in order to avoid a decrease in sales and potential overstocks.
Children’s wear is relatively well-managed by retailers, but shows opportunities to increase pricing on tops
As many parents, specifically Millennials, wait until later in life when they have more disposable income to have children, they are less concerned about pricing when purchasing clothing for their children. This is driving down elasticity across almost every children’s wear category. Retailers have largely aligned with these trends, as dresses, sleepwear, and bottoms show increasing pricing. Footwear, which shows a significant rise in price elasticity when compared to the previous report, is also well managed as retailers have been responding with lower prices. The one poorly-managed exception is in children’s tops where pricing elasticity is falling, and retailers are decreasing prices, representing an opportunity for retailers to capture greater revenue.
Pricing sensitivity drops across most home goods categories, with opportunities to increase pricing in decor and textiles
Elasticity has fallen significantly across every home goods category with the exception of housewares, according to the study. While in furniture, where retailers are increasing pricing in line with falling elasticity, retailers are incorrectly dropping prices in decor and textiles categories as elasticity falls. In housewares, where elasticity continues to rise, retailers are better managing this risk when compared to the previous report, and are lowering prices in line with consumer expectations.
“Knowing what your customers want and what they are willing to spend is critical to keeping up with this technology-centric, immediate-gratification customer,” Petro concluded. “Retailers must keep pace with changes in elasticity of demand across every subcategory to maintain solid profit margins and achieve financial goals, particularly when facing product cost increases due to tariffs.”
The full report can be downloaded here www.firstinsight.com/decoding.
About First Insight, Inc.
First Insight is the world’s leading customer-centric merchandising platform that empowers retailers and brands to incorporate the Voice of the Customer into the design, pricing, planning and marketing of new products. Through the use of online consumer engagement, the First Insight solution gathers real-time consumer data and applies predictive analytic models to create actionable insights, which drive measurable value. Retailers, manufacturers and brands use the First Insight solution to design, select, price, plan and market the most profitable new products for reduced markdown rates and improved sales, margins and inventory turnover. Customers include some of world’s leading vertically integrated brands, sporting goods companies, department stores, mass merchant retailers and wholesalers. For further information, please visit www.firstinsight.com.