Retailers' Dirty Little Secret

[Editor’s note: The following is a crosspost by Stephanie Landsman that originally appeared on CNBC.com]:

Merrie Satran used to love shopping for trendy, well-made clothes. She's hung on to Betsey Johnson dresses and Express tank tops from the 1990s. They're not faded, stretched or ripped—unlike the clothes she has purchased much more recently.

Over the past few years, the 38-year-old mother of three has tightened her purse strings when it comes to buying clothes. It's not because of her household finances. Rather, it's due to a sense that there has been a dip in quality at many of her favorite go-to stores.

A shopper carries a bag from an Old Navy bag as she walk by a Prada clothing store on May 13, 2013 in San Francisco, California. (Getty Images)

"I would never even dream of paying full prices at the Express or Banana Republic. I know the clothes won't hold up as well. They usually last just one season," said Satran. "Nothing is worth it."

It appears Satran isn't alone. The latest chain store sales numbers show apparel retailers depended more on unusually deep discounts last month to entice consumers and boost sales. It came as consumers were spending more on their homes, cars and other bigger ticket items.

Although Gap had no immediate response to a call from CNBC for comment, a spokeswoman at Express said, "Express has always offered its customers a high quality product as well as a compelling price/value proposition. We care deeply about the quality of our product and strive for excellence and consistency. Quality has not been sacrificed to improve margins."

Looking across the retail industry, at a wide variety of stores, Vincent Quan, associate professor at the Fashion Institute of Technology, does not seem surprised some consumers perceive lower quality in today's clothes. Quan, who spent more than 20 years in the retail industry, finds there's an unquestionable decrease in the fabric quality at many of the best-known chain stores.

Instead of relying on consumers to spend more money, it appears far more retailers are squeezing whatever costs they can on the production side, Quan said. He added, he's seeing shirts with lower thread counts, less expensive synthetic fibers and no extra buttons.

"If you buy the product, as you wash it, the wear on the product, it becomes less structured and pilling starts to occur in a thinner product. So, the quality has definitely gone down," said Quan. "But, that is all in the interest of maintaining or growing your gross margin."

By sacrificing the fabric, retailers can keep the price points stable and continue to offer up the deep discounts consumers have become accustomed to, according to Quan. Plus, the companies can soften the blow of rising labor costs—particularly in China.

Quan has contacts working inside the nation's most talked about brands and retailers. He has heard companies are limiting things like merchant travel overseas to visit vendors—as well as substituting fabrics and trim. It's all in an effort to reduce costs and build gross margins on all products.

But, it hasn't been all bad news for retailers. The business has seen relief over the past couple of years from a big drop in cotton prices, which have fallen about 60 percent from the record set on March 7, 2011.

"The interesting thing about where the market is right now is that the price of cotton is around the price of production," said Rogers Varner, writer and analyst at the Cotton Row Journal. There's no near-term risk for cotton prices to spike, according to Varner.

In this April 24, 2013 picture, clothing is modeled on mannequins in a retail store's window display in Baltimore. (AP)

So, will there be a time when these retailers revert to producing higher quality clothing—even if they cost more?

The chances are slim, according to Brian Sozzi, Belus Capital Advisors CEO and chief equity strategist.

"The large majority of consumers are not going to reward the retailer for that quality investment via a full price purchase. Value continues to reign supreme. So from a risk-reward standpoint, it makes no sense," said Sozzi. "Retailers have trained consumers like dogs to pay prices of yesteryear for merchandise that is of lower quality."

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