Retailers Have a Pricing Problem
Today’s consumers, with access to economic information through various channels, not to mention what they see on store shelves and racks while they shop, are well aware of the fluctuation in prices.
Earlier this year, in addition to all the attention paid by the press to rising gas prices, consumers were able to see numerous reports on commodity costs that were moving steadily upward. Retailers, while trying various ways to keep a lid on increases, could at least point to commodities to explain the need for higher prices.
What isn’t accounted for and not always understood by consumers is the lag in pricing changes. The most obvious example is at gas stations where sharp drops in the price of barrels of oil are not immediately reflected in what consumers pay at the pump.
Well into the back-to-school season, apparel retailers find themselves in a conundrum, as well. Current pricing needs to reflect record higher costs associated with cotton earlier this year, while news organizations report prices for the commodity have dropped 38 percent in the last month. Current prices, according to a Wall Street Journal report, are 53 percent lower than record high levels in March.
"There’s never been this kind of volatility in cotton — ever," Eric Wiseman, chief executive of VFCorp., told the Journal.
According to The Associated Press, stores are trying to "disguise the fact that you’re going to pay more for clothes this fall." Retailers, are raising prices an average of 10 percent this year, reflecting higher commodity and labor costs.
The report points to a number of ways that retailers have tried to keep the lid on higher prices, including less fabric and substituting cheaper materials for cotton. Stores have also been accused of using some advertising sleight-of-hand to make deals appear better than they are.
"We’re not seeing deflation or inflation; we’re seeing con-flation," Marshal Cohen, chief industry analyst with The NPD Group, told the AP. "Stores are making consumers believe they’re getting more for their money."
Retailers don’t agree with that assessment. Lands’ End recently took prices up on its clothing.
"Consumers are going to notice the price differences," Michele Casper, a spokesperson for Lands’ End, told the AP. "But they are also going to get a lot of added benefits so they know they’re not getting short-changed."
- Consumer Price Index – U.S. Bureau of Labor Statistics July 2011
- Higher prices: the big trend for back-to-school – The Associated Press/Google
- Tumble in Cotton Prices, New Wrinkle for Apparel Makers – The Wall Street Journal
Discussion Question: How should retailers be handling the issue of price increases with consumers at a time when commodity prices are so volatile?