Vendors Position for Price Upswing
January 24, 2011,
New York - Aggressive inventory control over the past year, wariness at the coming upward price shifts, an upswing in e-commerce, and a fair amount of product and style innovation, combined to produce a satisfying holiday season and a brisk January clearance period, home textiles vendors told HTT. On the other hand, it is clear that retailers and vendors alike will be feeling their way toward a new pricing plateau as the fourth quarter rounds to an end and cost pressures fully impact ongoing sourcing and wholesale orders.
Across broad categories of products and most tiers of retail, the suppliers pointed to a level of promotional activity this month that was in line with their expectations for the post-holiday season, noting that the year-ago climate - and the atmosphere earlier in 2010 - had been much more punishing. Now, however, even as retailers unleash clearance plans and call in markdowns in the seasonal push to clear their aisles for fresh merchandise, the stage is set for a dance of unstoppable upward price adjustments played against a backdrop of a wavering U.S. economy and uncertain consumers.
"All of Christmas was promotional," said Louis Hornick, chairman and ceo of Louis Hornick & Co. "I suspect it will take the entire month of January and maybe until mid-February to purge out the system; this is symptomatic of recessionary times."
"Overall, I think retailers are being less aggressive than last year at this time," said Jason Carr, founder and president, Softline Home Fashions, who couched that comment by adding, "They were just clearing goods all through 2010 - it was a hard grind."
"January/February is shaping up to be slower than last year," said Barry Goodman, vp national accounts, Commonwealth Home Fashions, "as retailers were restocking their shelves in 2010, after a very poor 2009 where they let their inventories run down during the recession."
"Promotional pricing is about where we expected it to be," said Amy Andrews Bell, executive vp of Home Fashions International. "Retail inventories are a little less this year."
"We haven't seen any real reductions in inventory at the retail level," said Carl Goldstein, executive vp, S. Lichtenberg Co., explaining that the window treatments category is less a seasonal-change business than, for example, bedding. "They feel they've got to have new styles constantly, new turn...rather than a reorder business."
"In this economic environment, the desire to keep merchandise turning and inventory levels low is expected," said Joe Blazar, director of marketing and product development, consumer products, Future Foam. He called the current promotional activity "expected" but added, "Post-holiday retail sales, the last week of 2010 and the first week of the new year, were exceptional."
Sean Frankel, principal at Arlee Home Fashions, told HTT that promotional pricing among his retail customers is "in line with expectations - but aggressive, given forthcoming price increases." Frankel was quite positive looking ahead, however, calling the current activity "encouraging." He added, "Since fourth-quarter sales were strong, consumer demand and traffic appear greater than last year."
"I think there is concern" among retailers, offered Budd Goldman, ceo of Ellery Homestyles. "I've heard some inquiries from retailers saying, ‘How is business in general; what are you seeing?' When you get a call like that - it indicates they are having concerns or issues."
Alan Eisenberg, senior vp of sales, Protect-A-Bed, said the current pricing trend at retail is "in line with our expectations." He added, "The January-February sales period is shaping up as a slight increase in business as compared to last year at the same time period."
Price adjustments loom
Snow of Royale said the onrushing momentum for price hikes - driven in particular by rising material costs in cotton and polyester - is being addressed at a different pace by buyers in different segments of retail. While nearly all home textiles goods on the selling floor at holiday had been made and delivered prior to the chaos in the cotton casbah last fall, indications of this upward movement in pricing began to be felt, here and there, as Q4 got underway, and have become more clearly evident as merchandisers start to shift in new goods this month.
"Probably the most significant thing is how each one was adjusting to rising prices," Snow said. "Department stores, with their high-low umbrella, were shielded a bit from pending price increases. The EDLP [every day low price] retailers felt the impact more - but they turn inventory much faster; they benefited much quicker when prices were falling."
And off-price chains? "In order for them to really succeed, they need to show real differences in price," Snow observed. "So they are waiting for the new price structure to establish itself."
In large part, the off-price retailers will have several more months to prepare their new pricing strategies agreed Bell of Home Fashions International. "Raw materials costs won't impact them until April or May." She pointed out that to an extent, off-pricers "comp off of somebody else." The lowest price tier, the dollar-merchant types, said Bell, could feel the most pressure. "They'll be quite challenged. As far as the make, you can't take any more out." One response, she suggested, is to wow shoppers with sales events that create a "uniform, collective look throughout the whole store - from gifts and mixing bowls to soft and hard home." At least one off-price chain has had good success with such events in the last two years, said Bell.
"I think it is being more aggressive," Goodman of Commonwealth said of the current promotional marketplace. "However, the latest price increases are making it more challenging to reach the magic retail price points."
"We're talking about a retail community where probably any of the buyers who have been buying for 10 years or less don't know the words ‘price increase.' If anything, they've seen price deflation," said Goldstein of S. Lichtenberg. "But we're past that point. It's not rumored, it's not ‘We're not going to pay the increase.' You can negotiate - we always do - but the reality is, the costs are up. The real question is who absorbs it. The supply side has for the past year. We're at the point now where the factories are not going to absorb these costs." "The problem the retailers have is that sales for the last three years have been flat or down from 2007," Goldstein asserted. "Now with costs going up, do they absorb that and maintain their price points - or raise retails to maintain margin?"
"I think buyers are growing more understanding of the problems said Carr of Softline. "There's more press about what's been going on in China, Pakistan, India, everywhere. Anyone who thinks that retailers at all levels are not going to have to increase their price points is delusional."
Goldman of Ellery said the conversations with retailers about price instability began at the end of October. "We looked at our costs and said, ‘Hey, we need some partnership with the retailers.' We measured our strategies, talked with each of them... We've not heard one retailer say, ‘What are you talking about?' They bring in enough product themselves; they know."
New products, dotcom pleased
Some vendors pointed to holiday business that exceeded expectations; several described standout products that helped them achieve pronounced upside in the fourth quarter. And in spite of the general economic doldrums, it appears that a fashion cycle, a move away from basics, might even be getting underway.
"I'm glad that retailers are going a bit more for the novelty fabrics, trying to get a little more risky in color," said Carr. "Some buyers are giving us the opportunity to test a lot more than they used to" in terms of both product selections and the number of doors, he said. "I think every buyer is looking for the next great thing; we're trying to appeal with a more fashion-driven product."
"For us, throws sold real well" in the fourth quarter, said Ellery's Goldman. They are giftable." The runaway best-seller for the company, he said, was the SoundAsleep Comfort Pillow, a basic polyfil bed pillow with built-in speaker compatible with iPods and other mobile music devices. "It was huge online and in bricks and mortar," said Goldman. "It resonated with consumers."
Another utility bedding item, memory foam mattress toppers, led the way at holiday for Future Foam, according to Blazar.
For Protect-A-Bed, the core mattress protectors and mattress encasement products performed best, said Eisenberg. Another fast mover was the Bed Bug Protection Kit, designed to shield the mattress, box springs, and pillows from those pesky varmints. Eisenberg singled out specialty sleep shops and big box retailers as the company's outstanding customers for the season.
Arlee saw Black Friday sales kick off strongly with two-pack decorative pillow sets and luxury throws, said Frankel. Overall through the holiday season, its best performing offerings seem to have been pet beds and blackout thermal curtains.
For Commonwealth, "Our best selling category for this period was our Thermalogic Energy savings curtains," said Goodman. "Our basic Weathermate cotton duck insulated program" was the style leader in sales.
Dotcom merchandising was clearly a bright spot for a range of vendors. Softline, which established itself as a progressive resource for web-based merchandising, has seen retailers avidly participate, said Carr: "We are providing our online retailers the necessary photography, personnel and staff to upkeep their site if need be, and we continue to get even more active online."
"In many cases, dotcom wasn't even a conversation three or four years ago," Carr said, noting that more and more buyers realize the advantages, such as testing new goods with less inventory exposure, that an e-commerce program can yield.
Goldstein agreed, but cautioned that when a retailer calls for an e-commerce exclusive, the vendor must be wary of taking on the costs of design, production and delivery, only to be out of luck if that retailer has over-assorted a category, due to the easy entry costs of web-only product presentation.
E-commerce can mean more than an electronic stand-in for a print catalog, however. New twists in marketing are a key component. To pump up a social media campaign, Ellery tapped a viral marketing agency to help with its SoundAsleep rollout at holiday, and the company plans to increase such online marketing efforts in 2011, said Goldman.
"Online retail by far" was the most satisfying merchandising segment for Commonwealth during holiday, said Goodman.
Louis Hornick & Co. enjoyed an outstanding rollout of its Firefend thermal blackout curtain line this holiday, with exceptional results at online merchants - and "we just went live with JCPenney.com on January 4," said Louis Hornick. He added, "Customers purchased from four to 12 units; they must be dressing a significant number of windows in their households. In my 35 plus years in the business, I've never seen anything like that."
Tripp Hornick, coo of the company, told HTT the Firefend Facebook page gains dozens of new consumer "friends" each day, and the company plans a number of sales-boosting initiatives, including a Name the Dog contest for the line's Dalmatian logo, a promotion that could be ready for launch around the time of the March market week.