(Bloomberg Opinion) -- Shares of Procter & Gamble Co. reached an all-time high this week after the company released a blockbuster quarterly earnings report. Organic sales – a measure that strips out currency movements and other factors – were the highest in more than a decade, with each of its major divisions posting at least mid-single digit growth from a year earlier on this measure. An upbeat sales and earnings forecast for 2020 capped off the win.
It’s a remarkable change in momentum for a consumer-goods behemoth that only a year ago was licking its wounds after a bruising proxy fight and was desperate to show it could do better amid tough competition from insurgent and private brands.
So how did P&G do it? Many factors, including a new organizational structure and revamped marketing strategy, are playing a role. Importantly, though, it’s also done a good job of figuring out how to get shoppers to pay more for its products. It’s here that I want to focus, as there are some lessons in what P&G has done for another corner of the consumer world – the apparel industry – which badly needs to do the same thing.
One way P&G has gotten consumers to splurge is through product innovation. Pampers Pure – a version of its familiar diaper that is made with plant-based and sustainable materials – has helped lift sales recently in its baby division. This product, new to the market in 2018, capitalizes on consumers’ growing preference for eco-friendly products while also giving the company a reason to charge a premium price. This year, it followed up with Pure products in its Always and Tampax brands.
Higher-priced items have also been driving strong growth in its laundry division. Tide Pods and Gain Flings carry a 50% price premium compared to liquid detergent, and yet shoppers scoop them up because the format offers obvious convenience.
Here’s why I think the apparel industry should pay attention to this dynamic, even though selling consumer staples is a somewhat different beast. Chains such as Gap Inc., Ann Taylor and Macy’s Inc., have become over-reliant on discounts, which can cheapen their image and hurt margins. Lately, their approaches seem to largely center on using technology to present more personalized deals, or to introduce fresh loyalty programs as a way to offer value. And it hasn’t done much to return them to relevance.
What if, instead, they focused on product innovation, like P&G does, to get people to pay full price? In apparel, there are at least a couple of ways to do this.
One is working to develop garments with clear functionality or performance advantages, such as a white t-shirt that isn’t see-through or pants that don’t shrink in the wash. This, in fact, is how Lululemon Athletica Inc. has become a rare bright spot in the clothing business. Women are willing to pay $98 for its leggings because its distinct fabrics and designs result in a comfort and durability that shoppers deem worth the price tag. No wonder the athletic apparel retailer has booming sales and practically never discounts.
Product innovation could also mean fashion newness – creating pieces that people simply feel like they have to have. As Andrea Felsted and I noted in a recent column, Inditex SA’s Zara does it all the time. J. Crew Group, for all its current woes, managed to win with fashion innovation during the apex of the Mickey Drexler-Jenna Lyons era, when its sequins-as-daywear and oversize necklaces became a go-to look every chain was forced to imitate.
It isn’t just product innovation, though, that has allowed P&G to win with pricing; it has also raised prices on existing items under banners such as Bounty, Charmin and Puffs as it has sought to offset elevated commodity costs. In some ways, this is a risky move, as private-label brands are there as a cheaper alternative.
Here’s the thing, though: P&G is fond of saying “performance drives brand choice.” In other words, executives trust that, for all but the most budget-conscious shoppers, people are going to be loyal to the product they think works best.
Clothing sellers should consider embracing this philosophy. Mid-priced apparel chains appear to be battle-scarred by two factors: the recession that ended a decade ago, and the concurrent competitive incursions from value-oriented players such as H&M operator Hennes & Mauritz AB and TJX Cos., owner of the T.J. Maxx chain. That confluence of events seemed to spook them into believing that the only thing that would ever get shoppers to open their wallets is discounts.
I don’t think that’s true. In today’s upbeat economy, I am confident plenty of once-devoted Banana Republic, Loft or Express Inc. shoppers would pony up for work attire they perceived to be durable, or for a date-night dress they thought was a knockout. The mental calculus wouldn’t be so different from why that same woman springs for Charmin even when the generic toilet paper is right next to it on the shelf: It performs better, so it’s worth the cost.
Mall-based clothing chains are in a rut. It’s high time for some more creative thinking – and perhaps some unusual inspiration – if they’re going to dig out of it.
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Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.
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