Since the start of 2023, clothing prices in the Consumer Price Index (CPI) have fallen by 6%, even though inflation over the past 12 months has been 4.2%. In June's CPI, which was published last Friday and was unexpectedly unchanged, while food prices rose by 0.1%, clothing prices fell by 3%.
Meitav chief economist Alex Zabeshinsky said, "This is the lowest figure in recent years, and it is extreme compared to the situation in the US and Europe. Since clothing depends on seasonality, what is unusual here is not the 6% drop, but the fact that this is the sharpest drop ever. Maybe because this year the promotions were advanced in both winter and summer, maybe excess inventory, low demand or competition. In the fashion industry, the clothes are produced more or less in the same places. There is no clothing manufacturing industry in Israel, and there is a difference in the exchange rate, so even though the shekel has depreciated, the prices are falling in contrast to an increase in other places."
Looking at credit card spending data, there is a rise in fashion and footwear spending. According to SHVA, which manages Israel's national credit card payment system, total credit card spending in the fashion and footwear sector was NIS 15.5 billion in the first half of 2023, up from NIS 15 billion in the first half of last year. This includes the online sector, which also reflects a relatively rosy picture - NIS 4.9 billion from January to June 2023, compared with NIS 4.5 billion in the corresponding period last year. But considering the fact that in the first half of 2022 inflation was low, while in the first half of 2023 prices reached record levels, the numbers actually reflect a real decrease.
CoFaceBDI co-CEO Tehila Yanai said, "We do not see an unusual phenomenon or one specific reason that caused today's situation. She explains that the reasons are due to several trends that affect the situation in the entire economy, and the fashion market in particular. She said, "It seems that the main reason is competitiveness, which only is increasing, including sites and purchases online and purchases abroad and of course a fall in purchasing power and the atmosphere in the economy. Since January we have been in an atmosphere of complete uncertainty."
Yanai says two significant rival trends have emerged in the fashion sector in recent years that threaten local companies: the international online market, and the second-hand trend. "Lots of consumers moved to purchase on cheaper sites such as Shein. Another factor is the development of the second-hand trend when even the chains are adopting, in Israel and around the world."
Tamnon fashion chain CEO Baruch Reiner, explains that the market has shrunk as consumers spend more on food and rising mortgages and rents. "The elasticity of demand in our field is very high. You can lower the price by 20% and sell three times more."
The drop in prices is occurring despite an increase in the fashion chains' overheads including electricity costs, the rise in the minimum wage last April by 5.1% and the fact that the absolute majority of rents for stores are linked to the CPI, which has soared in the past year. These are also some of the reasons for the erosion in profitability of publicly-traded fashion companies in the first quarter of 2023.
Reiner says the negative trend will be reflected in the financial reports for the third quarter of 2023. "The reports will be tough, unlike the second quarter. This is one of the most competitive seasons in this market. Prices in the countries of origin will not rise and may even fall. So on the one hand prices in the countries of manufacture were lower, shipping prices have fallen which in the winter is critical and this alone is worth 5%-6% of the cost of the product because these are products with volume. On the other hand, it is offset because the dollar affects about 10% of last year's price. Ultimately, it is the same cost. The most important parameter in the winter beyond the security situation is the weather. If only a few drops have fallen by the end of November, our situation is good. If not, we are in for a more difficult battle than in the summer."
Published by Globes, Israel business news - en.globes.co.il - on July 18, 2023.
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