Of Mice and Merchants
July 15, 2011,
Warren Shoulberg PUBLISHER/ EDITORIAL DIRECTOR
Because this is when things are going to start to get really interesting.
Over the next 45 days, stores selling home textiles will begin to put on their shelves the merchandise they bought late last year and in early 2011 ...the merchandise made with cotton that cost about the same as plutonium 239.
The very same merchandise that will create a onetime chasm in the wonderful world of home textiles the likes of which we haven't seen in a long, long time.
We all know about cotton prices and how they spiked last winter to astronomical levels. They have receded greatly since then, though they remain about twice as high as two years ago. But, most of the programs for fall 2011 deliveries were quoted, priced and bought under those record raw material prices, and even if some have been adjusted in the interim, you can't go back and get a refund from cotton growers once you've bought your bale.
So, retailers putting all of these products into their stores in late summer and early fall are faced with one of three options: Pass along most, if not all, of the increased cost to the consumer; eat most, if not all, of the increased cost themselves; or roll the dice and settle for something in between.
Most retailers who sell sheets and towels pretty much plod along a similar course. A 400-threadcount sheet set is usually similarly priced no matter what the store, and solid color towel programs are benchmarked like Federal Reserve indices.
But this is different. How each store chooses to handle the cotton calamity will have a huge impact on that store's business and subsequently on the business of both its competitors and its suppliers.
Most publicly held retailers have talked about passing along at least some portion of the raw material increases to their customers. We're already starting to see some of this in the marketplace.
But others aren't. They are not in the soft home business (at least not yet, anyway) but H&M, the giant Swedish fashion retailer that has blown into the United States in a big way, has publicly stated it will not pass along any raw material cost increases to its customers. This is a huge play to gain both short-term market share and long-term customer loyalty at a time when achieving either is pretty tough to accomplish.
The other thing H&M will do is take an immediate hit on its earnings, something that is already turning up in its most recent financial results. How long the company will hang in there with this strategy remains to be seen but, if cotton prices are truly coming down - and they appear to be right now - H&M's pain will be short-lived ... and its gains could be just as much long-lived.
Price guns at the ready, let the drama begin.