Posted on by John Sloman

Not-so-cheap cheap fashion

Rising costs of cloth and a rise in VAT could mean that clothes prices are set to rise. Does this spell the end of cheap fashion from the likes of Primark and H&M? Or can they absorb the cost increases?

The following articles look at the causes of the rise in costs of clothing and what the cheap fashion chains can do about it.

Articles
Primark follows fashion rivals as it warns of rising costs Guardian, David Teather and Zoe Wood (13/9/10)
Primark warns on costs as growth slows Telegraph, James Hall (14/9/10)
Is this the end of cheap clothes era? Price of cotton has rocketed because of floods, Primark warns Mail Online, Sean Poulter (14/9/10)
Fashion chains far from cheerful about future of cheap chic Observer, Zoe Wood, David Teather and Julia Finch (19/9/10)

Data
Commodity prices (including cotton) Index Mundi
Cotton futures BBC Business: Commodities

Questions

  1. Why have cotton prices been rising? Illustrate your arguments with a demand and supply diagram.
  2. Would you expect a rise in the price of cotton of 45% to lead to a rise in the price of cotton clothes of 45%, or of more than 45% or of less than 45%? Explain.
  3. For what other reasons are the prices of clothing rising?
  4. How did the process of globalisation keep the price of clothing down?
  5. Next’s chief executive, Lord (Simon) Wolfson said that if prices of Next’s clothes go up 8% then the number of units sold will fall by 10%. What is the value of the price elasticity of demand that he is assuming?
  6. Why is the ‘Fairtrade system so important’?
  7. “Some retailers have already increased prices but there is more to come. The products most under threat are T-shirts, underwear and socks. More complicated garments such as heavy jeans will be less affected.” Why are the prices of more complicated garments likely to rise by a smaller percentage than those of simple garments?
  8. What has been happening to the demand for cheap fashion clothing and why? Combine this effect with those of costs on a demand and supply diagram.
  9. What type of market structure is the market for fashion clothing? What are the implications of this for the profits of retailers?