Fashion Brands:- The fashion industry is an exceedingly competitive and fast-paced market. With the advance of the internet and globalization, it has become easier for consumers to buy products online and receive them at their doorstep. This has led to a significant increase in demand for fashion products, which has increased the cost of production.
Input costs are expected to continue to increase because of factors such as rising wages, materials, energy costs, transportation costs, regulations and other factors that can influence supply chain bottlenecks. In order to keep up with this increasing cost of production, it forces many brands to raise prices in order to maintain profit margins.
These rising input costs have been putting pressure on the producers and consumers who are being forced to pay higher prices for their products.
High input price in fashion has a significant impact on both producers and consumers. The producer has to deal with higher production costs, so they have to raise their retail price as well as allocate more resources towards marketing and advertising.
This affects both retailers and customers who have to pay more for their clothing items, which is ultimately bad news for them.
Reason for high input cost and inflation in fashion industry –
The fashion industry is one of the most dynamic industries in the world. It is a multi-billion dollar business that has been growing steadily over the last few decades. However, the industry has been facing several problems, such as high input costs, inflation and lack of transparency.
Its complexity can explain the reason for high input cost in the fashion industry. Fashion requires a lot of creativity and technical know-how to produce, which requires time and investment.
It has been difficult for brands to manage their supply chain in a way that they can get their products out to consumers at a low cost while keeping their brand image intact. This is because of the large number of stakeholders involved in production – such as designers, fabric suppliers, manufacturers, retailers and consumers themselves.
The major reasons for the increase in input prices are:
- Consequences of Pandemic : In the first quarter of 2020, the coronavirus pandemic led to a 3% drop in global trade values. COVID-19 could trigger the biggest economic contraction since World War II, affecting all industries from finance to hospitality. According to Statista, – “production fell by 37.4 percent in the period between April-June 2020, when global coronavirus cases reached a peak. Retail sales of clothing products saw the most dramatic decline, with 43.5 percent drop in sales.”
- Raw Material Shortage : The fashion industry is facing a raw material shortage. With the rising demand of the industry, the prices for input materials have been rising. The high prices for input materials in the fashion industry are also because of a lack of raw materials that are needed to make clothes.
- Rising Container and Shipping Prices: shipping and logistics are one of the most important factors for cost and pricing of the product. The cost of shipping goods by container will be higher in 2022 than ever before. This is due to the increase in demand for goods and the rise in fuel prices.According to TIME reports: “Transporting a 40-foot steel container of cargo by sea from Shanghai to Rotterdam now costs a record $10,522, a whopping 547% higher than the seasonal average over the last five years.”
- Supply Chains are bottleneck at US and European Ports: In recent years, many companies have moved to Asia for their manufacturing needs because of cheaper labor costs and faster shipping times. This has caused a shortage in port capacity in North America and Europe, which makes it difficult for companies to get their products out of these countries. The US has been trying to solve this problem by investing more into its port infrastructure, but this has been ineffective since it takes up too much time and money.
The US and European ports cannot handle the increasing demand for containerized goods. There is a bottleneck in the supply chain, which leads to high costs and long delays. The supply chain at US and European ports is one of the most important parts of our global economy.
- The Great Resignation in USA: U.S. employees began leaving at a record pace in the second half of 2021. In 2022, nearly 23% of employees left their new job and 9% had already found a new job. The great resignation, combined with the rise of the creator economy is leading to the rise of new eCommerce companies at a very rapid pace, leading to higher demand for consumer products, which in turns add to higher cost of goods.
Effect of high input cost on fashion industry –
The fashion industry is one of the most competitive industries in the world. With a high input cost, it is difficult for brands and retailers to make it back to factories.
Fashion industry faced a 20 % decline in revenues in 2019–20. This is because of the increasing competition between brands and retailers, which leads to them having difficulty making it back to factories.
The fashion industry is facing a supply-demand gap for two reasons. Domestic demand has been increasing at a rapid rate. The second is that the input cost of producing garments has significantly increased.
If the industry cannot bridge this gap, it will lead to a decrease in consumer spending and a decline in the fashion industry’s GDP.
The cost of raw materials, labor, and energy has increased significantly in recent years. This has led to a decrease in the production rate and an increase in the price of clothing.
The global fashion industry highly depends on importing raw materials from other countries. The domestic demand-supply gap is likely to take two more months before it is bridged.
The effect of high input cost on the fashion industry may cause an increase in the price of clothing or a decrease in the production rate.
The effect of high input cost on the fashion industry is that sales are lower by 25%. The demand for cheaper and more accessible fashion products is increasing, so it’s a good time to invest in new designs and start a business.
The Tiruppur hub in the southern part of India has also suffered as export manufacturers missed out on orders for two upcoming seasons.
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How Companies are dealing with high input costs?
Fashion Brands :- Another way is to lower their profit margins in order to increase sales volume and cut down costs.
Companies are struggling with the high cost of input materials and the low profit margins. One way to cope with this is to transfer it to consumers by making them pay more for products.
The rising costs of input materials have made it difficult for companies to maintain their profit margins. However, some companies have found ways to lower the cost of production and increase the quality of their products.
The rise in input costs has been a significant concern for many companies in recent times. This may lead to a decrease in profits and an increase in prices for consumers. Some companies have found ways to lower the cost of production and increase the quality of their products by transferring it to consumers, lowering profit margins, or finding new markets. Eventually the retail prices for fashion products will increase, what needs to be seen is how fashion brands can increase their retail price without significantly losing their customer base.