What's going on?
Zara-owner Inditex announced impressive results on Wednesday after some crafty price hikes.
What does this mean?
Inditex is just one of many retailers facing higher costs, but the world’s biggest clothing retailer’s been hiking its own prices to make up the difference. By no small amount, either: UBS data showed Zara’s prices were up 12% on average in July from the same time last year, overshooting inflation which hit 8.3% and 9.9% in the US and UK last month. Mix those (some would say greedy) price hikes with a super-strong US dollar, and the fast-fashion behemoth bulked its sales and profit by an expectation-beating 25% and 41% respectively over the six months leading up to the end of July versus the same period last year. And Inditex isn’t slowing down: the retailer told investors that sales from this August and the first week of September were up 11%.
Why should I care?
The bigger picture: The power to price.
Whether cheap-and-cheerful retailers or luxury stores are more able to weather inflation’s storm divides opinions. On one hand, price rises on lower-cost items might be small beer in absolute terms. But on the other, luxury brands can flex their “pricing power” – jolting prices without scaring off customers – more, since their clientele generally have higher budgets. But one thing’s for sure: brands that sit somewhere between the two can bank on neither smaller hikes nor fanatical brand loyalty, so they may have tougher months ahead.
Zooming out: It’s more than just pricing.
Inditex flies through its massive inventory, which is a life-saver in times like these: retailers with fast turnovers can push their prices up every time they release a new line. But because retailers tend to bump their inventory ahead of the shopping-heavy winter season, keeping stock flying out the door will be vital – especially if this selling season turns out to be as bad as some expect.