From a recent RetailWire discussion about retailers’ ability to raise prices — or inability — in the face of rising commodity or gas prices. It’s not so easy, and recent history should be a guide:
What happened to many midtier apparel stores in 2011 as a response to higher cotton prices should be a cautionary tale for any CPG marketer or retailer. They were faced with a choice between raising prices (which almost immediately put a dent into their sales) and absorbing lower margins in order to protect the top line. The customer doesn’t understand — or care about — the worldwide commodity market, but she does grasp the right price to pay for a cotton t-shirt.
In an age of increased consumer empowerment — typefied by the QR scanners on all those smartphones out there — retailers need to be extremely careful about raising prices, or they need to find offsetting cost savings in the supply chain to protect both sales and margins.