Repeating the pattern seen in 2002 and seven of the eight previous years, 2003 started with a decline in the U.S. consumer price index (CPI) for apparel. Year-over-year retail apparel prices dropped for the 34th consecutive month in January, as they had in 57 of the last 60 months. While U.S. retail prices, overall, have increased roughly 3% per year over the last decade, apparel prices have generally declined over that period, slipping 2.8% in 2002. The deflationary trend in apparel prices is pervasive, not only affecting the retail segment of the industry pipeline, but also seeping upstream to depress prices charged by manufacturers and suppliers of textiles and apparel. The recent apparel price declines have affected all retail channels, as shown by data from STS Market Research.

Several causes underlie the considerable downward pressures on retail apparel prices. First and foremost is the tendency of consumers to purchase more clothing from mass merchants. According to Cotton Incorporated’s Lifestyle Monitor™, in 2002, 20% of consumers bought most of their apparel at mass merchants, up from 17% in 1994. Business Week recently reported that Wal-Mart, the largest mass merchant and apparel retailer in the United States, saw its share of apparel sales at retail rise to a record 12.9% by the third quarter of 2002. Second, consumers are conditioned to look for and even expect sale prices. Data from STS Market Research indicate that sales of apparel at discounted prices rose from 59.7% in 2001 to 62.7% in 2002. Third, as noted in the fall 2002 Textile Consumer, retail floor space in the United States has grown faster than consumers’ spending on apparel. The National Research Bureau estimates that the retail selling space of U.S. shopping centers quadrupled from 1970 to 2001, from 1.5 billion to over 5.6 billion square feet, while retail sales only doubled on a constant-dollar basis. The resulting oversupply of selling space implies more competition for relatively fewer consumer dollars. All of these factors have contributed to the downward pressure on retail prices of apparel.

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The Effects of Deflationary Apparel Prices

Declines in apparel prices are pervasive: as retail prices continue to fall, price pressures ultimately affect margins throughout the textile pipeline—for manufacturers, yarn spinners, and fiber producers. Recent research by Cotton Incorporated has uncovered evidence of the effects of declining retail apparel prices on upstream segments of the textile and apparel pipeline. Using price data from 1984 through 2002, the study examined the relationship between changes in raw cotton prices and changes in offering prices for cotton yarns. The study looked at prices for cotton open-end (rotor) carded yarns, ring-spun carded yarns, and ring-spun combed yarns, each of which was further divided according to yarn fineness, based on the English count (Ne) scale. The research revealed significant positive correlations between mill-delivered cotton prices and prices for each yarn type and count. This result was not surprising; however, a key finding was that the strength of these correlations increased markedly over time, as retail apparel prices weakened.

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This finding suggests that yarn prices have been much more responsive to changes in raw cotton prices during the recent period of pronounced declines in retail apparel prices than they were during earlier periods of increasing or flat apparel prices (these periods are shown in the graph to the right). This in turn suggests that as apparel prices declined, spinners faced more competitive pricing for their yarns, which made yarn offering prices more responsive to changes in raw material costs. The graph below demonstrates how the correlation of yarn prices with raw cotton prices increased for coarse-, medium-, and fine-count yarns as apparel prices evolved from generally rising during 1985–1992 to trending flat during 1993–1998 to gradually declining from 1999 to the present. The increased yarn price competition also is consistent with the growing influence of brands and retailers on the early segments of the textile pipeline. Increased price competition in retail sales of apparel has spurred downstream segments to become more directly involved in negotiating prices and procedures with upstream suppliers, such as yarn spinners.