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Prices on imported clothing to drop

Will this shirt now cost less?

Will this shirt now cost less?

The prices on imported clothing in Israel is expected to drop by up to 12% in the coming weeks, thanks to a repeal of customs duties on most apparel categories that was signed into law by Finance Minister Yuval Steinitz in September. The repeal became effective on January 1.

Now the question is – how much of that lowered cost will be passed on to consumers. In a perfect world, it would be the full 12% customs duty, but clothing importers and stores might just as easily reduce prices less and pad their bottom lines. That’s what one unnamed retail executive speculated in an article in this week’s Haaretz: that consumers will only see about a 3% drop. He cited other factors, like the increase in VAT from 16% to 17% earlier in 2012 and hikes in rent and utilities, blunting the savings.

At least one fashion chain – Fox – went on record to say that its customers will benefit, although Fox Group CEO Harel Wizel wouldn’t say how much. “The elimination of the customs duties was taken into consideration when we priced our summer collection. With the repeal of duties…we priced the relevant items at lower prices and, as proof, our gross profit has not increased,” he told Haaretz.

Prices for items already on the shelves will probably not be retroactively decreased, since the stores bought these when the 12% customs fee was still in force. The repeal does not include underwear or bathing suits, either.

Local Israeli manufacturers were not happy by the customs repeal, saying they couldn’t compete with cheap Asian imports. They even took the matter to court. (The High Court of Justice rejected a demand by local manufacturers to issue a temporary injunction against the customs repeal, although the court is to consider the petition at a later date.)

Another anonymous source quoted in the Haaretz article claimed that clothing prices in Israel are already lower than in the rest of the world and that “anyone who talks about reducing prices is saying it [only] because it sounds good.”

Israel with the lowest prices? That doesn’t exactly reflect my experience. Still, even if the entire 12% customs repeal were passed on, with no other “adjustments,” pricing for clothes in the Holy Land still won’t be as cheap as in the U.S. – that’s because it’s not just customs duties but also the cost of shipping overseas and a set of other complex international marketing factors that result in a pair of Gap jeans at the Mamilla Mall going for double the price in the U.S. But every little bit helps.

Let’s hope that the reductions on customs and other pro-competition moves that have already been set in motion continue post-election.

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Posted in Saving Money.

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