The current pricing scheme within the fashion industry is largely ambiguous. Young consumers who look to find the best combination of brand, style, quality and price now have an overwhelming number of places to make their purchases. As a result, the simple decision of “what shirt to buy” leans more and more on a quantitative, noise-cancelling comparison: which price is the lowest. However, while the aesthetics of a piece can be readily analyzed by just about anyone, price is dramatically more nuanced. It is much harder to determine the worthiness of a price-tag than it is to determine the value of the garment’s allure. This information asymmetry can lead to some nasty side effects – not just for our wallets, but for our shared environment.
Due to our globalized world, the fashion industry has now more suppliers than ever, making consumers more price-sensitive. Brands can’t depend on consumer loyalty at large anymore, and consumers can’t expect prices to carry equal weight across different brands. Jeans from a luxury brand may look identical to those from a fast-fashion chain, but beyond their exterior, they are worlds apart. From the designer’s workshop to the factory floor, there are many “behind the scenes” factors that determine how garments (even ones that look exactly alike) are priced.
The CPI (consumer price index) of apparel is an economic figure used to measure changes in average clothing prices over time. Over the last 70 years, the CPI of apparel prices has fallen worldwide, per a recent McKinsey & Company report. Such trends typically indicate either excess supply (more clothes than buyers) or reduced demand (i.e., “jeans are out”). Curiously enough, in this case it’s both.
First, there’s more supply than ever. Since the year 2000, global clothing production has more than doubled. In fact, in 2014, the annual number of garments produced each year exceeded 100 billion for the first time with no signs of slowing down – that’s double-digit new clothing for everyone on Earth, made each year into the future.
Then, there’s the “demand” side of the equation. From an economic perspective, demand is measured by the share of income being spent on a certain good (i.e., did you spend 10% of your paycheck on those new shoes, or did you find a cheaper pair and spend only 5%). It’s also important to note that less demand does not translate to less consumption. A recent report by the Brookings Institute claims that between 1984 and 2014, both low- and middle-income families spent universally less of their income on clothing. However, during that same period, the average consumer also purchased 60% more garments than they did in 2000. These trends indicate that income share allocated to apparel is declining – a paradox, given the massive (and recent) bump in consumption.
The driving force behind this incongruence is nothing other than old-fashioned “mass production” – or more precisely, the economies of scale that it creates. Companies forge ahead with deliberate cost-cutting motives, meaning the quality of the materials often hits the chopping block in favor of cheaper input prices. Consumers tend to overlook these divergences in quality due to the allure of attractive, low prices: why not purchase three pairs of pants for the price of one quality pair, especially if your increased consumption of cheaper clothes leaves you with money left over?
If the relatively-higher price of high quality products (especially ethically-sourced products) turns consumers away, then perhaps it is time to examine the pricing scheme and reshape the consumer mindset of clothing consumption. One method that may enable this reshaping is already practiced in society: installment buying, or financing through payments over time. This pricing model works with cars, furniture, and even Apple products – it may therefore be a natural fit for higher-ticker clothing.
Clothing though is different, primarily because how we consume clothes differs from how we consume products like iPhones or couches. Consumers often do not know which clothes they want until the clothes are put in front of them. This means they are less likely to commit to dedicating monthly payments to an expensive product because they did not have the original intent to do so.
The other problem with this commonly proposed pricing model is that consumers are used to buying one couch, one phone, and one home. Clothing, however, is a different story given that the average consumer tends to have more than one outfit, and at times buys multiple sets of garments at once.
A better approach would be through communicating the transparency of production. While ethical, more expensive brands tend to value transparency more than fast-fashion retailers (or at least more likely to market themselves accordingly), there are few widely-recognized regulators that can verify their claims, leaving even the least skeptical consumers hesitant. There’s no FDA equivalent for clothing – it is entirely up to the buyer to judge each individual brand’s authenticity.
This approach, though, does not yield sustainable results. When quality gets less consideration than price, it creates many inefficiencies across the board. Not only does consuming more pieces of clothing entail a faster turnover rate and more waste, if the pattern continues across emerging markets, it will lead to drastic increases in the industry’s environmental impact.
Not only will it market better to consumers, but it will also pressure larger retailers to try and meet the same standards of production. Consumers could begin to look at the risks and benefits of consuming a piece of clothing much like how they look at their consumption of foods; and it requires little effort by the consumers to change their behavior. Setting up established institutions or a government agency like the FDA for apparel that can verify a brand’s production process, and then visibly communicate that message on the tags of garments, will put in place a mechanism to better educate the consumer on what their purchase entails.
While the approach does not directly affect the pricing scheme, it does indeed affect the way consumers view the prices of clothing. If consumers can additionally begin to consider their purchases with a CPW (cost-per-wear) mindset by thinking of how many wears they can get out of a product relative to its price, it can reduce the buying of cheap, unethically-produced clothing and lead to less waste and greater sustainability. This would likely result in more meaningful consumption at prices that are both sustainable for brands and affordable to consumers. People don’t need to spend more money on clothes; it may just be better to change what they buy with that money.
In the 1860s, English economist William Stanley Jevons observed that technological improvements that increased efficiencies in using coal to power steam engines actually led to an increase in coal consumption rather than an expected decrease. Jevons concluded that given the lowered relative cost of coal, demand and thus consumption for coal increased. Intuitively, greater improvements in technology should lead to large benefits; what Jevons’ Paradox shows is that new developments may come at an even greater cost.
The application of Jevons’ paradox is most evident in the fashion industry’s growth over the past decade and a half. The apparent success of the industry in keeping prices lower relative to all other goods has enabled consumers to in fact consume much more than they used to, rather than consume the same and save more. Even further, they have been able to do so while allocating less of their money to clothing. Although it may seem that such apparent successes in the industry benefit consumers, the costs of forgoing ethical production and creating more waste are grave consequences of such changes in the industry. If brands can work to communicate their transparency more clearly, setting institutionalized standards throughout, and consumers keep their spending habits but merely alter their consumption ones, the industry then has greater potential for not just financial growth, but mature, sustainable growth.