Price Elasticity Shifts Mean New Revenue Opportunities and Risks for Retailers and Brands

Shifting shopping behavior drives new opportunities in swimwear, risks in everyday wear

NEW YORK – October 24, 2017 – Today, First Insight, Inc. a technology company transforming how retailers make product investment and pricing decisions, announced the findings of a new study, “Decoding Price Elasticity to Unlock Revenue and Minimize Risk,” which examines pricing and elasticity trends in womenswear, menswear, childrenswear and home goods across North America and Europe over a two-year period.

According to the study, price elasticity is shifting significantly in several retail subcategories, creating revenue opportunities as well as risks for retailers who may not be equipped to respond to these changes. The shift in price elasticity emerges as consumer behavior has rapidly evolved, forcing retailers and brands to meet new demands and preferences of shoppers.

“Fast-moving industry trends such as aging Baby Boomers, growth in Millennial spending power and migration to online shopping are having an impact on pricing and demand,” said Greg Petro, CEO of First Insight. “This shift is creating a disconnect for retailers and brands between what they’re charging, and what consumers would actually spend.  Our new study unveils these shifts and offers insight into how best to price a category to meet demand, protect margins and avoid problems with excess inventory.”

The study examined pricing and price elasticity trends on more than 90,000 items processed through InsightSuite – the company’s predictive analytics platform, which enables retailers and manufacturers to select, price, market and buy new products with no sales history. The study examined data between September 2015 and August 2017, along with other proprietary sources.

Key findings of the report include:

  • Shifting shopping behavior drives new opportunities in swimwear, risks in everyday wear

Womenswear is seeing decreases in elasticity and represents opportunities for retailers to maintain or increase prices, particularly in swimwear where shoppers are becoming less concerned with price. Conversely, frequent purchases such as women’s outerwear, accessories and tops are seeing a jump in elasticity. These trends are consistent with the maturing womenswear market, as older shoppers are buying fewer items and cash-strapped millennials, who are drawn to fast-fashion brands, are driving greater elasticity on everyday purchases.

  • Menswear largely well managed, but increased prices in underwear possible

In Menswear, sales are increasing according to recent U.S. Census data, and retailers have been effectively balancing price with increasing elasticity overall. However, significant shifts in subcategories remain, as elasticity in underwear is falling, creating an opportunity for retailers to increase pricing. Bottoms, in contrast, continue to become more elastic as pricing increases and retailers need to take note to avoid overstocks due to decreases in sales.

  • Childrenswear shows opportunities to increase prices in sleepwear but be cautious of high-priced bottoms

Research shows that while overall sales of childrenswear are falling, some brands and retailers are seeing significant growth. This is in line with First Insight’s report which found that elasticity is falling along with pricing. Sleep/loungewear in particular has shown declining elasticity as well as falling prices, which makes it primed for price increases. However, not every subcategory represents opportunity. In the bottoms category, for example, where elasticity and pricing are both increasing, retailers need to be wary of buyers’ diminishing appetite for higher prices.

  • Consumers becoming more sensitive to home goods price changes, particularly in furniture

The home goods category, traditionally the least elastic, is seeing a significant increase in elasticity as buyers become more sensitive to price changes, consistent with the increasing numbers of cost-conscious Millennials who are buying and furnishing their first homes. However, prices in the category have been rising, representing a risk to retailers if continued price increases result in fewer sales over time.

“Offering the right product at the right price is a key determinant of the success or failure of retailers and brands in today’s shopping environment,” Petro concluded. “Retailers able to meet shoppers at the intersection of price and elasticity have the greatest opportunity to increase sales and revenues with the least amount of risk.”

The full report can be downloaded here.

About First Insight, Inc.

First Insight is the world’s leading provider of solutions that empower retailers and brands to incorporate the voice of the consumer into the design and merchandising 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 and market the most profitable new products for reduced markdown rates and improved sales, margins and inventory turnover. Customers include some of the world’s leading vertically integrated brands, sporting goods companies, department stores, mass merchant retailers and wholesalers. For further information, please visit www.firstinsight.com.

###

Partner Content

The Gift of Wow: Preparing your store for the holiday season - Netsuite
Being prepared for the holiday rush used to mean stocking shelves and making sure your associates were ready for the long hours. But the digital revolution has changed everything, most importantly, customer expectations. Retailers with a physical store presence should be asking themselves—what am I doing to wow the customer?
3 Critical Components to Achieving the Perfect Order - NetSuite
Explore the 3 critical components to delivering the perfect order.
Streamlining Unified Commerce Complexity - NetSuite
Explore how consolidating multiple systems through a cloud-based commerce platform provides a seamless experience for both you, and your customer.
Strategies for Maximizing Mobile Point-of-Sale Technology - NetSuite
Learn the top five innovative ways to utilize your mobile POS technology to drive customer engagement, increase sales and elevate your brand.