Analysis: Price hikes test Inditex’s ability to stay in fashion

MADRID, Sept 15 (Reuters) – Zara proprietor Inditex’s robust first-half outcomes present its technique of elevating costs since early 2022 paying off up to now, nevertheless it and different style retailers must watch out to not overdo it with additional hikes that will scare away consumers, analysts stated.

As an alternative, it ought to contemplate incremental, focused will increase to check prospects’ willingness to pay extra, slightly than computerized and across-the-board worth rises, they stated.

The world’s largest style retailer stated on Wednesday it could increase costs once more within the second half of the yr after spring and summer season will increase. It reported a 41% revenue leap for the six months to July and gross sales rose by round 1 / 4, beating investor expectations. learn extra

The Spanish group’s shares jumped as a lot as 6%, with its success in passing on greater prices serving to the inventory to outperform European rivals corresponding to H&M this yr.

Trend producers in Europe and North America proceed to really feel strain from rising vitality, labour, transport and uncooked materials prices and so are more likely to have to lift costs extra. However whereas six months in the past that was an virtually computerized response, firms ought to take a “extra granular strategy” for 2023, stated Finn Hansen, CEO of market analysis agency PriceBeam.

“The final worth will increase have been primarily pushed by rising enter prices, whereas the upcoming worth will increase will nonetheless take a look at enter prices, but in addition more and more take a look at shopper affordability, willingness-to-pay and anticipated shopper responses, so not as computerized as final time,” Hansen stated.

PriceBeam expects about two-thirds of producers to lift their costs within the coming months.

THE BIG SQUEEZE

Clothes gross sales in most European markets elevated within the first half of the yr as consumers splashed out on holidays and occasions after the lifting of COVID-19 restrictions. However demand has slowed barely since August, elevating the prospect {that a} squeeze on family budgets is taking a toll.

Zara’s beginning costs have been 12.2% greater in July than a yr in the past, greater than the 5.6% enhance at H&M over the identical interval, in line with UBS analysis. The agency screens costs on Zara’s web sites throughout 12 key markets.

“Whereas first worth will increase have been accepted within the first half of the yr … we count on Inditex and most friends to submit double-digit worth will increase in Europe within the second semester. The cumulative worth will increase of 15-20% in Europe are more likely to result in shoppers buying and selling down,” Credit score Suisse stated in a analysis word.

Its analysts count on general European clothes gross sales to melt from November as inflation continues to squeeze shopper demand.

Deutsche Financial institution analysts imagine Inditex ought to change costs incrementally to get in the direction of an 10% enhance this yr, to keep away from any adverse shopper response.

“The excellent news is that this doesn’t look like impacting demand but, regardless of the more durable market situations in August,” they wrote.

Reporting by Corina Pons
Enhancing by Mark Potter

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