Swinging to Higher Prices
June 9, 2008,
Retailers are finally acknowledging it: Supplier prices are going up, and stores are passing the costs on to consumers.
Here's Big Lots, a week earlier: "We're very conscious of [inflation], and we're very systematic about where we're taking price increases because it's a reality. You can say no to any manufacturer you want to, but at the end of the day they'll say, 'Just fine; we're not going to ship you'."
Target, late last month: "Our response has always been to work with our suppliers so that we don't have to accept [price increases] or delay them or accept a smaller portion of them. But if they do come to us and we have to accept them, which in some cases we do, we are looking to pass those along in the marketplace as a matter of last resort. We are planning on increasing retails in those businesses [discretionary categories] where we have to absorb some of those price increases."
Now, that doesn't mean all the cheap stuff is going away, or that low prices are going away, or that margins for suppliers are suddenly going to become fat and sassy.
But it does mean that the long era of ever-diminishing prices for ever-improving quality goods is over.
For years everyone asked: Where's the floor? We now know the industry has hit the price floor — and it is rising.
Here's the message that needs to be absorbed by a generation of merchants who have never seen a price increase: The era was an anomaly.
What's happening now is the way it worked for decades before the great global shift. Costs rose; prices rose.
There's no New China, New India or New Pakistan to pivot toward today. As Big Lots' chief noted, manufacturers everywhere are sufficiently pressured by costs that they have learned how to articulate the word 'No.'
Consumers have no choice but to accept higher gas and food prices, and for the time being that's going to keep them away from discretionary purchases. But — as happened in the '70s — people started trading in their big gas guzzlers for more fuel-efficient cars, and life went on.
GM's recent announcement that it will shut four plants making SUVs and pickups, and shift its focus to smaller vehicles, suggests the wheel has turned round again.