Yesterday’s NY Times ran a story in Thursday Style called “Dress for Less and Less.” The article’s premise is that, despite rising prices for food and gasoline, the cost of clothing has gone down. As examples, the author, Eric Wilson, cites Levi 501 jeans that were $50 in 1998 and are $46 2008 and Lacoste polo shirts that went from $95 to $75 in the same time period.
It is difficult to take such a story seriously. All the products mentioned are highly branded, in most cases high-end or designer goods (Vuitton, Ralph Lauren, Brooks Brothers), and quite expensive. Most middle class shoppers will not be paying $325 for a DVF wrap dress, and I have never paid even half of $75 for a polo shirt. But the interesting question is why? Why have these clothing prices come down? Wilson gives two explanations:
Over all, apparel prices have gone down primarily because of two factors: the overwhelming movement of manufacturing to countries with cheaper labor, where the clothes are made, and increased competition between traditional retailers and discounters, where the clothes are sold.
The outsourcing of jobs provides savings for all clothing manufacturers, and the article does not assert that discount prices have moved down to a similar degree. So the answer is price competition. Cheaper non-branded goods are being offered by discounters, and, in some cases, discounters are selling the same items for less. The elasticity of price for these more expensive products reveals the premium we pay for brand name goods and how arbitrarily manufacturers and retailers set their prices. Despite somewhat lower prices today, we can assume these branded items are still profitable—else they would not be sold. The profits are just a little smaller than they used to be.
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