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May 18, 2008
Analyst Perspective: Coping With Price Increases
The climbing costs of petroleum and Chinese production will result in higher prices for Outdoor merchandise in spring 2009. I'm predicting a 10%-15% rise across most classes, so the question is: What as merchants should we be doing about this?
At this point everyone is aware of the ripple effect of petroleum increases, but few realize that vendors' sewing contracts with Chinese manufacturers are about to expire. When these contracts are renegotiated, they are guaranteed to specify a higher rate for their work, which will then be factored into the price of the goods they produce.
Unfortunately, buying merchandise closer to need is not the answer since vendors will be cautious about controlling their upfront production in the face of higher costs, making in-season merchandise scarcer.
This means that retailers need to have a clear understanding of how much they need to land on a month-to-month basis 12 months in advance. More than even before, Outdoor merchants now need to be forecasters. They need to be open to new planning methods that can clarify the 'crystal ball'.
Understanding how to land up-front purchases closer to demand will be key. The close-out pipeline will become much less reliable than in previous years.
Some of your customers will support the price rises while some will not. To keep customers you will need to make sure your floor looks fresh every month by placing deliveries in a timely manner. You also need to energize your mix by seeking out new vendors and categories (See my March 17th blog, “Mixing It Up”).
These price and production issues will probably also lead to a shortage in must-have items so you will have to adapt to this changing environment as well. My answer: play to your strengths. Advertise the must-have classifications and if a customer comes in and the key items are sold out, make sure they walk away with something they not have planned on buying. We need to drive more traffic to off-set any customers that put on the brakes
when they see increased prices.
These adjustments take some planning but can be done in a profitable way, and they are absolutely necessary if you are going to survive and prosper in this new retail climate.
And, if you have any questions about how to make these changes and how to forecast 12 months out you can always give me a call.
Posted by Jason LeBlanc at May 18, 2008 08:50 PM
