Economics

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Does Advertising Pay off in Clothing Retail? Estimating the Returns to Advertising in the United States’ Fashion Retail Industry
(2013) Preston, Suzanna; Ghosh, Indradeep
This paper explores the relationship between advertising and profitability in the United States’ clothing retail industry. In this analysis, a time panel data set from Mergent Online Database for 2007-2011 containing advertising expenditures, net profits, and other data on public clothing retail firms in the U.S. is utilized. Using methodology from a 2004 paper examining the returns to advertising in the pharmaceutical industry, I find that there is a positive relationship between advertising expenditures and a firm’s profits in the clothing retail industry. Through various regressions, I find that a 1 dollar increase in advertising expenditure corresponds to a .50-.85 dollar increase in profits, significant at the 1 percent level. The results of this paper provide important implications for clothing retail firms as they make decisions on how much money to allocate to advertising.