Recent economic data for the month of March seems to indicate that the United States is experiencing the beginnings of a recovery after facing devastating blows during the past year due to the ongoing coronavirus pandemic.
However, a confluence of events could impact consumers at their wallets in the coming months, causing an uptick in retail prices, including for shoes.
This week, the Bureau of Labor Statistics issued its Consumer Price Index for the month of March, revealing a 2.6% rise for the previous 12 months, the largest over-the-year increase since August 2018 — driven in large part by a 13% leap in energy prices.
Gary Raines, chief economist at the Footwear Distributors and Retailers of America, noted that footwear prices have remained low for some time, but in the last month, prices in the men’s category did increase “at a good clip” and other markets could soon follow suit. “Year over year, women’s and children’s were still lower last month, but I think there’s writing on the wall that that is likely to reverse course later this year,” he said.
Below are three factors that could impact footwear pricing scenarios.
Consumer Demand Is Increasing
The basic law of economics still applies, even in a pandemic — and as consumer demand increases, so too could prices.
In March, total retail sales exceeded expectations, growing 9.8% to $619.1 billion, compared with economists’ bets of a 6.1% gain. The spike has been credited to the arrival of a new round of stimulus checks, which hit shoppers’ bank accounts last month.
And FDRA predicts that sales for footwear could see more gains in the coming months, as vaccine rollouts continue and coronavirus restrictions ease, allowing Americans to return to classrooms and the office.
“Now that consumers are venturing out a little more, I think there’s going to be some need for replacement footwear,” explained Raines. “For awhile, people maybe thought, ‘I can let it slide since I’m not going to work or school — let’s focus on food on the table and a roof over the head.’ But as the recovery gains more traction, you’re going to see that incentive to replace those old worn out shoes really kick in.”
Products Are Still Sitting on Cargo Ships
For the past couple of months, congestion at the Ports of Los Angeles and Long Beach has been creating massive headaches for importers, particularly footwear brands, which produce a majority of their shoes in Asia and that enter the U.S. through these West Coast entry points.
The current backlog has come from a combination of labor shortages due to COVID-19 infections and a rapid increase in imports after factories delayed shipments during spring lockdowns last year. While L.A. port officials have said they’ve made progress in catching up, as of yesterday, there were still 19 cargo ships sitting in the harbor waiting for a berth, according to Marine Exchange. And in its March Global Port Tracker report, the National Retail Federation and Hackett Associates predicted that overall U.S. import volume will remain at unprecedented levels at least through
Many shoe companies have already started warning investors that the shipping delays could cost them tens of millions of dollars. Steven Madden Inc. pegged its Q1 impact from the ports saga at $30 million, and Caleres reported it is facing between $60 million and $70 million of delayed inventory receipts. Whether brands will be forced to raise wholesale or retail prices to offset the shortcomings remains to be seen, but any inventory scarcity — in combination with increased demand — could inch prices higher.
The Dollar Is Weak & Buys Less
According to Raines at FDRA, one of the biggest drivers of consumer price increases is the weakness of the U.S. dollar. “Typically, as the dollar goes lower, commodity costs tend to go higher. And that’s certainly been the case here, as the dollar has been down over the last year, and of course, all these commodity costs are up in the opposite fashion, as good economic theory says it should be,” he said.
Rising commodity prices — including the aforementioned increased energy costs — touch footwear companies in a range of ways, explained Raines. “When it comes to shipping, we’re looking at crude oil costs. Or you look at cattle and how it impacts leather, or cotton prices impacting footwear materials like shoestrings. And then also with higher crude oil costs come rubber prices, and [there’s the relationship between] tree pulp prices and shoeboxes. The list goes on and on.”