Brands are ‘planning for the worst’ as economic downturn looms

All signs indicate a financial downturn is on the way. Wells Fargo CEO Charlie Scharf said there’s “no question” that the U.S. is headed for rough economic times, and investment firm Y Combinator told startups to “plan for the worst.

With rising inflation, ongoing supply chain issues and a forecast of reduced retail sales, fashion brands are making contingency plans for a potentially rough season of sales. Those plans come in many forms, from easing out of promotions to getting supply chain issues sorted ahead of price hikes to releasing fewer new products.

Aaron Luo, founder of the bag brand Caraa, expects a shift in the way the customer shops.

“Historical data shows that when inflation goes up, spending – especially discretionary spending – goes down,” Luo said. “Because of this, we believe customers will continue to purchase from brands like ours. However, they will be much more thoughtful and selective with their ordering, like selecting a product that serves a purpose in their life, versus one they merely like the aesthetic of.”

In response, Luo said he and his team have become “hyper-aware” of new product introductions for the next six months, evaluating more carefully than usual whether the demand for a new model is worth the investment. He also said Caraa wil be “more relaxed” with its promotional schedule and keep discounts to a minimum.

Managing and anticipating demand will be one of the biggest challenges for brands in the next six months, as Kohl’s CEO Michelle Gass said in the company’s full-year earnings forecast on May 19. According to Gass, demand for apparel will be “considerably weakened,” thanks to increasing prices, calling out children’s apparel as one area that Kohl’s has seen underperform.

For many brands, the other biggest concern with an economic downturn is that the already difficult supply chain situation will become even more bogged down with delays and higher prices. Getting supplies and materials has become incredibly expensive in the last year as has the cost of shipping products.

“Over the past several months, we have seen a number of our costs rise, most notably, the cost of shipping to our customer [through carriers like UPS and FedEx],” said Jenna Kerner, co-founder of bra brand Harper Wilde. “However, we don’t want to pass that burden onto our customer.”

Many brands have resorted to raising prices to deal with inflation. That includes Lululemon, which announced significant price increases in March. But Fisher said her brand is looking for other ways to alleviate the pressure. That includes increasing cart sizes by bundling products, so that more product is shipped in fewer shipments, and lengthening the promised timeline for the shipment of made-to-order bras.

Kerner said Harper Wilde is at least somewhat insulated from inflationary pressures by virtue of selling a “necessary product at a value price point” of around $45.

Fashion brands that sell luxury products seemingly have more to worry about.

DYC jewelry brand Aurate’s biggest concern is the upfront costs of creating its products. Gold and diamonds are expensive and are getting more so by the day. The cost of gold has risen nearly 20% in 2022 alone, according to Goldman Sachs.

“The way we are preparing for [the economic downturn] is by partnering very closely with our suppliers and ordering inventory now, before the prices go up too far. This way we can continue to serve our customers the best price and quality jewelry,” Sophie Kahn, co-CEO of Aurate. “So far, we have not experienced a slowdown in sales. But we don’t want to jinx anything and will stay humble and nimble.”

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