Clothes stores feel pinch as prices fall

Ben Laurance|Mail13 April 2012

CLOTHING prices are falling like never before - great news for shoppers, but a huge headache for fashion retailers.

The cost of buying clothes and shoes fell by two per cent in the 12 months to December.

And changes in international trade rules that came into force at the start of this year mean the fall is likely to gather pace in 2005.

Last year's price reductions followed cuts in 2003 and 2002. In fact, prices have fallen for an unprecedented seven years in succession.

The fall is even more dramatic when inflation in the whole economy is taken into account, with the real cost slumping by more than a third in seven years.

A leading retail analyst said: 'This is a huge challenge for the fashion industry. If prices are falling, they have to shift more merchandise each year just to get the same amount of money.'

And this is against a background of increasing costs such as higher wages and rents.

The Multi Fibre Agreement, which was abolished this month, set quotas on how much could be imported from cheap textile producers. But with Western retail giants now able to pick and choose where they buy, prices are bound to continue falling.

Lower buying costs will not, however, lead to fatter margins for retailers. If one tries to pocket the saving, another will pass on the cuts in lower prices and customers will vote with their feet, so every retailer will have to follow suit.

While all this is good news for consumers, it is a nightmare for fashion chains, which have to run faster simply to stand still.

Discount chain Ethel Austin, with more than 300 outlets, now sells a white T-shirt for £2. 'Ten years ago, the price was £3,' said chief executive Phil Hoskinson.

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