“High demand is driving greater pricing power,” said an American Eagle official in May. The company noted a “significant reduction in promotions” during its latest quarter.
When the pandemic began last year and consumer demand came to an abrupt stop, brands initially feared it would lead to stockpiles of unsold clothing that they would have to markdown to clear off their shelves, said Siegel.
But brands’ worst-case scenario didn’t play out. Demand paused, but much of the clothing supply chain did too because factories shut down. That helped brands avoid a doomsday inventory glut. Supply chains have since resumed, but not at a fast enough pace to meet heightened demand.
The National Retail Federation, an industry group, expects retail sales to grow between 10.5% and 13.5% to more than $4.44 trillion this year, nearly double a previous forecast it gave.
“Once demand came back, there simply wasn’t enough supply to meet it, which triggered a dramatic pullback on promotions,” Siegel said. For brands accustomed to promoting their products heavily, it’s a “once in a lifetime scenario.”
Supply chain delays are expected to continue through the rest of 2021, which will make it challenging for companies to build up their inventories, said Janine Stichter, a retail analyst at Jefferies.
That means that consumers should expect to see fewer promotions than they’re accustomed to for the remainder of the year, she said, including during the holiday shopping rush.