Posts Tagged 'Commodity pricing'

Can retailers really afford to raise prices?

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.

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How low will retailers go?

Another pre-Black Friday forecast on RetailWire…this time, on the subject of promotional pricing for holiday 2011. My opinion:

I don’t expect discounting to be sharper this year than in years past, especially if merchants have managed their inventories conservatively. However, they need to be careful that the “price creep” driven by higher commodities prices doesn’t choke off demand. And a lot of the market-share battle is being fought on fronts like free shipping (for web-based or multichannel retailers) and loyalty discounts (like the Target Redcard). By mid-December we will know whether “holding the line” on discounting was a viable strategy or not.

Commodity prices: What’s the solution for retailers?

With commodity prices such as cotton wildly fluctuating, it’s hard to know how to respond if you are a retailer or vendor. Here’s my comment, recently posted on RetailWire:

It’s difficult to expect consumers to accept higher prices on clothing after years of flat-to-deflationary prices. One retailer recently reported a direct causation between price increases and falling demand: For every 1% price rise, they saw a 1% drop in units sold.

Retailers and suppliers are going to have to work harder than ever this fall to maintain retail prices. They may need to take cost out of a garment by using more manmade fibers, and they definitely need to find savings in sourcing and supply chain management. But in an atmosphere of high economic uncertainty, raising prices is a recipe for losing market share.

 

Do rising gas prices threaten the recovery?

I think I’m in the minority among RetailWire panelists in discussing the effect of rising gas prices upon economic recovery. My contrarian view is that some inflation is reflective of higher demand…a good thing. I think we have more to worry about other rising commodity┬ácosts and their ripple effect on retail prices:

If gas prices hover at $4 or below (let’s hope not), the economic recovery can withstand it. In fact, you can make a case that rising demand for energy is a sign of economic health. It’s all about the drop in unemployment…if and when it starts to happen. There is going to be just as much inflationary pressure based on the cost of raw materials — in particular, cotton and other commodity prices have already spiked dramatically and it’s only a matter of time before wholesale costs convert to higher retail prices. The question for 2011 is whether the apparent rise in discretionary spending on apparel will continue in light of these higher commodity prices.


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