Jacket economics: Why the huge price gap? | Fin24
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Jacket economics: Why the huge price gap?

Aug 04 2017 05:00
Daniel Silke

THE Woolworths (David Jones) men’s Harrington jacket is a garment of great style and flexibility. Impressive fabrication and fit make this a winner. I admired this on the shelf somemonths ago when it was launched as an autumn/early winter line, but its R1 599 price tag simply put me off.

Fortunately, I delayed gratification and was delighted to find the very same garment in the right size available at the recent Woolworths winter sale for R699.90. Clearly, the higher original price had deterred many other buyers from enjoying this impressive product.

Sale merchandise all have a story to tell. Over-buys, unpopular styles, pricing issues, seasonal/weather related overstock and even suspect quality control can contribute to items ending up on sale. In the case of my Harrington jacket, perhaps it was price that brought the excess to the sale rack.

So having paid R699.90, I was offered a further Woolworths card discount of R69.99, bringing my eventual spend on this item to R629.90. This reflected just over 60% discount on the original selling price. Not bad at all!

As I have an unusual interest in global price comparisons honed through many years of travel, I thought it might be interesting to see at what price point David Jones in Australia (Woolworths’ recent retail acquisition Down Under) would charge for a similar garment.

Indeed, the same garment is on the David Jones website at a staggering price of A$219.95 or R2 319.35 at prevailing AUD/ZAR exchange rates. This represents a premium on the same garment purchased in Australia of around 30%.

The David Jones website does make mention of an online 30% discount, but this would still leave the garment at a substantial premium even comparing sale prices across both countries.

It would therefore seem that either this price point would be way too high for the average South African Woolies shopper or input costs in Australia are considerably higher, necessitating this premium. The jacket was made in Sri Lanka and therefore would attract relevant import duties to both countries.

Now, keen retail observers will note that recent retail additions to the South African market Cotton On, H&M and Zara sell across many global markets. And their pricing on most garments remains faithful across continents.

In other words, a Cotton On jacket will likely be priced very close to its global pricing in Australia, Asia and elsewhere. Cotton On ticket prices even have the ZAR price alongside a host of other countries, and represent fair value based on current exchange rates.

In its quest to become a more global retailer, Woolworths is facing a challenge from these other major players. Consistent pricing across jurisdictions is critical. Although the Harrington jacket example might be an anomaly, it can show just how price points in Australia differ to those in South Africa.

If input costs are indeed higher, Woolworths will struggle to create a more mass-market appeal for some lines given the Aussie price of this garment.

On the other hand, if the Aussie market can bear it, selling the same jacket at a 30% premium might make good business sense. It offsets a sluggish South African economy with higher value sales. That might be the hidden wisdom behind the David Jones purchase.

But unlike its fast-fashion competitors, Woolworths' lack of pricing consistency can affect sales and the brand itself. Consumers buying at H&M know they are getting a fair deal wherever they are in the world. And Australian consumers are increasingly price conscious and strapped for cash.

Finding a suitable price point is part of the science of retail. And when cross-border economic dynamics are as complex as they are, special skills are needed to achieve not only optimum sales but brand preservation. 

Still, in this instance South African Woolies shoppers should take advantage of such anomalies. Australia is not always the promised land!

* Daniel Silke is director of the Political Futures Consultancy and is a noted keynote speaker and commentator. He has a particular interest in retail. Views expressed are his own. Follow him on Twitter at @DanielSilke or visit his website.

woolworths  |  daniel silke  |  opinion  |  retail


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