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How Retailers Can Respond to the Rise in Apparel Prices

An article published in The New York Times says the days of cheap clothing items from China are over—which means apparel manufacturers and retailers should consider deploying RFID to stem rising prices by reducing supply chain inefficiencies.
Posted By Mark Roberti, 10.28.2011
By Mark Roberti

I read an interesting article in The New York Times the other day, reporting that "Beginning in the 1990s, the emergence of China as a major exporter first depressed and then held down the prices of many goods, helping to improve living standards in the United States. But recently, prices have begun to rise" (see The End of Cheap Chinese Goods).

To illustrate this price hike, the article features accompanying charts showing the Consumer Price Index for apparel (the charts use three-month moving averages to smooth pricing volatility, and to demonstrate broader trends). One chart shows that apparel prices began dropping as of 1999, as cheap imports from China flooded the market. Indeed, in 2010, prices were almost 9 percent lower than they were that year.

But in 2011, prices started rising. A second chart illustrates how the index has changed over the past 12 months. "It is now up to 3.6 percent, the highest since 1992," the Times article states. "Over the last six months, the three-month average has risen at an annual rate of 7.6 percent."

Rising prices are almost always a problem for retailers, but it strikes me as an even bigger concern than usual now. Given the current state of the global economy, unemployment remains high, and even those with jobs have less disposable income. Rising prices mean fewer sales.

According to the Times article, some apparel manufacturers are responding by moving production back to the United States, thereby reducing shipping costs and lead times. No doubt, some will seek to move production to Vietnam or other low-cost countries.

Radio frequency identification technology could help stem rising prices, by reducing supply chain inefficiencies. RFID can lower the rate of shipping errors from manufacturing facilities, thereby leading to higher costs when missing items need to be air-freighted to North America or Europe. If companies check shipments manually, it could reduce labor costs associated with receiving goods into inventory at a distribution center, picking products at the DC and verifying that the correct items are being sent to the store.

As I wrote recently, RFID could help to reduce internal shrinkage rates, saving the retail sector $20 billion annually (see Retailers Say Shrinkage Rose in 2011). A lot of items end up missing when a shipment arrives at a DC and is then broken down and put away. RFID could help reduce those losses, by ensuring that individual items are tracked. And it could also decrease the incidence of internal shrinkage within stores, by changing the culture that sees each individual item as having little value (see StorefrontBacktalk Misses the Point About RFID and Theft).

It will be interesting to see if rising prices accelerate interest in RFID adoption. My guess is that this won't happen right away—but as early adopters, such as Walmart and Macy's, hold the line on prices while other retailers are forced to raise them, more attention will be paid to the cost of waste in the supply chain.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark's opinions, visit the RFID Journal Blog, the Editor's Note archive or RFID Connect.

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