The prices of clothing and footwear are among those that increased the most in the last year, even above the general rate of inflation. According to INDEC numbers, while in June year-on-year inflation was 50.2%, in the case of clothing it climbed 65%. From the industry, they argue the effect of the pandemic and the high tax costs generated by commercialization.
What are the reasons that can explain these increases? A low level of stock of products to face an increase in demand, reduction in imports, a possible anticipation of eventual increases in the exchange rate and a high tax pressure are some of the arguments detailed by economists and businessmen.
“Clothing and footwear was the family consumption line that increased its prices the most in the last 12 months. Already in 2020 the sector had increased its prices above the average of the total basket. In addition to the obvious drop in consumption levels, as a result of the pandemic, there was a strong adjustment in the supply of textile production. Many companies had to cut their shifts for health reasons in 2020 and part of 2021, and the reduction in inventories was only partially offset by the growing production in recent months," explained Pablo Besmedrisnik, director from the consultancy Invenomica.
“When demand recovered, mainly due to the winter season, many companies found themselves with unprecedentedly low levels of stock. With demand showing signs of recovery and limited supply, there was pressure on prices. There was also another limitation on the supply side, which is the reduction in imports of textile manufactures, which contracted almost 40% in the first semester compared to the same period in the already depressed year 2020," said the economist.
Another factor that pushed up prices was a certain limitation in the supply of central inputs for the industry, for reasons such as exchange uncertainty, doubts about the continuity in the supply of imported inputs and the great mobility of prices. "Given the expectation of the continuation of the increase in the general level of prices and the perception that a possible more abrupt movement in the official exchange rate in the next six months, a logical policy of the manufacturing and marketing companies is to anticipate possible loss of value of your assets. And that is basically done in two ways, by increasing sales prices thus sustaining the replacement value of your merchandise, or by restricting sales,” Besmedrisnik said.
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Last week, during the presentation of the relaunch of the Ahora 12 program, President Alberto Fernández warned businessmen that the purchase plan in installments to stimulate consumption should not be an excuse to increase prices. And he directly targeted businessmen in the textile sector. "I hope that the textiles that increased their prices strongly do not take advantage of this and that they think about the possibility that all Argentines have access to better clothing without this meaning higher prices," said the president during the presentation.
According to the chief economist of the consulting firm Ecolatina, Matías Rajnerman, the President's anger with the sector has to do with the fact that the government implemented a more favorable trade policy for the sector and pro-industry, with a decrease in imports. “Between 2016 and 2019 textile imports opened up a lot and between 2020 and 2021 they didn't. There is a recomposition of margins, made possible by the change in policy that is later transformed into an increase in prices above the general level”, he highlighted.
However, from the industry, they attribute the increases to the tax pressure that falls on the sector, especially at the time of the commercialization of the garments and to the commercialization costs. “Prices is a complex issue. It is not exclusively related to an increase in profitability, there are many variables at stake that businessmen cannot control, such as the exchange rate, interest rates or taxes. The marketing of a product includes costs such as rental of premises, credit card commissions, e-commerce platforms or online payment methods”, Luciano Galfione told Infobae, secretary of the Protejer Foundation, which brings together firms from the textile and clothing sector.
“The costs of marketing in Argentina are enormous. The commissions charged by the cards are higher than in any other country. And taxes multiply . You can be charged Gross Receipts from anywhere. In the province of Buenos Aires if the company is there, in the City of Buenos Aires if Mercado Pago is used and in Santa Fe if the client is there. That's three taxes from three jurisdictions for a single sale. To which VAT and Profits are added. An archaic system, where taxes are superimposed, which complicates instead of simplifying”, said Galfione.
The businessman said that during the pandemic having means of payment and sales through online channels became an essential requirement for sales, which made operations more expensive. But he warned that the price increases are not the same for the different public and sales segments.
“The growth segment that the President talks about and the one that public opinion sees is the market of leading brands, which go to an ABC1 audience through platforms and commercial premises, which pays a number of costs that have nothing to do with the product. Then there is a wholesale market, which sells in quantity and is concentrated, for example, on Avellaneda avenue, in Flores. By selling the quantity, the costs are distributed more in the value of the products and they do not have marketing expenses”, he stressed. According to the textile businessman, the vast majority of price increases did not occur in the most massive markets, which have lower costs in general and where cash purchases are handled, without cards or financing.
However, there is a third segment that is in the informal sector and where the sale of garments is done through tax evasion. “It encompasses the sale and the confection. It is something that we do not endorse and it hurts us. But when you do a quick read of the price increases, a lot of elements are missing,” Galfione said.
At the end of July, from the Argentine Industrial Chamber of Clothing (CIAI) estimated that the garments of the 2021/2022 summer collections will have a rise of 44.9%, on average, in comparison between the prices of the same season of the previous year. The percentage arose from a survey among firms in the sector.
According to the chamber, the Argentine clothing manufacturing industry began to normalize its production level. After the interruption of activity during the second quarter of 2020, manufacturing was recovering lost ground, although with difficulties associated with the lack of working capital, access to raw materials and the need to comply with sanitary protocols.
“Given that during the second quarter of 2020 a large part of our companies were not authorized to work and only those dedicated to the manufacture of sanitary kits could, the comparison with May of that year shows an increase in the quantities manufactured of 149 .8%, according to INDEC. Instead, compared to May 2019, production shows a decrease of 20.6%, mainly explained by the reduction of the market due to the drop in the purchasing power of the majority of the population”, detailed.
According to the monthly survey of the chamber, if the amount of imports in dollars is compared between May 2021 and May 2019, the drop was 23.1%. Meanwhile, in quantities, the drop was 11.2% for the same period.
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