Manufacturers are wrestling not only with a weak economy, but the rising costs of doing business.
Richard Noll, chief executive officer of Hanesbrands, said in a recent conference call to Wall Street on the company's earnings, "We are beginning to see systemic rising input cost."
Noll explained that cotton has broken out of its trading range, and that other costs have worked their way through the value chain.
"Cotton has recently moved outside its historical trading range of 30 cents to 70 cents per pound, into the high-70-cent range. And while cotton prices could move back down, there appears to be substantial support at these elevated levels," Noll said.
The ceo explained that prices for the crop grown this summer, which will be used in production in 2009, have been in the mid-80-cent a pound range. "This leads us to believe that instead of prices close to the historical average in the mid-50-cent a pound range, we need to plan for cotton to be in the mid-80s for later in 2009," the ceo said.
Noll then told investors and analysts that the rising input cost has the company thinking differently about pricing.
"First, it is clear that sustained price deflation is over for much of the apparel industry, since most of the industry's supply chains have already moved to lower-cost geographies. And second, over time, price increases will need to become a tactical tool in this new environment," Noll said.
The ceo said that while the apparel industry has been mired in a deflationary environment for some time, he is seeing some price increases in select areas. He added that he doesn't yet have any answers for the questions "How much?" and "How soon?"
Archstone Consulting conducted a survey in February and March asking consumer packaged goods and general manufacturing firms about their approaches in dealing with the recent spike in commodity and raw material costs.
The Archstone survey found that companies will likely plan for price increases or cost offsets to deal with inflation. Of the respondents, 44 percent said they plan price increases, either through a direct price boost, the reduction of the number sold at the same price or fewer promotions. In addition, 57 percent of the firms surveyed said they are planning cost cuts in other areas of operations, such as material use and waste, to offset cost inflation."The dual challenges of managing cost inflation and soft customer demand have become the critical business issue for U.S. corporations during 2008," said Todd D. Lavieri, president and ceo of Archstone Consulting. "Success in managing levels of cost inflation, which have not been seen since the 1970s, and addressing an economic slowdown will be essential to lift sagging stock prices."
The Archstone survey said cost inflation has arisen mainly in three areas: transportation, energy and raw materials. So far, the economic news doesn't suggest an easing of those inflationary costs anytime soon.
The good news is that jobless claims fell recently and durable goods orders held up in March. However, new home sales declined, indicating the housing market is still weak. Crude oil prices peaked at $119.55 a barrel Friday.
Meanwhile, consumers have been paying higher energy costs in recent months, from heating bills to gas for their cars. Higher food costs are also a growing issue. The World Bank earlier this month said higher food prices could push millions of people in poorer countries further into poverty.
And last week, the price of rice was in the $24.70 range per hundred-pound weight, rising 68 percent in just four months. So great was the perception of a rice shortage fueled by high prices that two warehouse clubs, which sell to individuals and small businesses such as restaurants, began rationing the sale of bags of rice to its members. Sam's Club, owned by Wal-Mart, on Thursday limited the number of 20-pound bags of rice that could be sold to four per person; the limit was for jasmine, basmati and long-grain white rice. The move followed a similar tactic by Costco.
@chanel and @pharrell dropped what’s being dubbed as the world’s most exclusive sneakers yesterday. The Adidas Originals NMD Hu, which Williams designed in collaboration with Chanel and @adidasoriginals, has a waiting list of over 120K people who pre-registered online at chanelatcolette.fr –– and only 500 pairs are on sale. The singer predicted the resale value of the shoes could reach $40K. Read the full interview on WWD.com. Link in bio. #wwdfashion (📷: Dominique Maître)
@imanshumpert is diving deeper into his creative endeavors and relaunching his clothing line, Post 90s, and is helping to raise money for the hurricane victims in St. Maarten with a jersey he’s designed with his brother. The Cleveland Cavaliers player talked to WWD about kneeling during the national anthem, working with fashion brands and how he wants to be more than an @nba player. Read the interview on WWD.com #wwdfashion (📷: George Chinese)
Not only does #TheProfit return to CNBC tonight, but @marcuslemonis has launched @shopmarcus, a new shopping and lifestyle retail experience in Aspen and Chicago, with more locations to come. The retail stores offer in-store stylists and a variety of contemporary womenswear selections.
“It’s life, I’m going to face it,” @mingxi11 sighed. “I fell, but you know, I think the most important thing is that I get back up. I had the love, the help from my sister — the girl next to me Gizele [Oliveira] — she’s so nice. When I went backstage everybody was trying to comfort me like ‘Oh Ming, it’s OK.’ I’m really, really touched. I think it’s them who gave me the courage to go back on stage for the finale,” Xi told WWD of her fall at the @victoriassecret fashion show. (📷: David Fisher) #wwdfashion #vsfashionshow #victoriassecret
@louisvuitton tapped @therealpeterlindbergh for its latest city-centric photo book, which is part of a series called Fashion Eye. The primarily black and white book captures the spirit of Berlin in 57 images shot between 1989 and 2019. “Berlin is an inspiration for me, more than a city. I mean @millajovovich is simply Berlin!” said Lindbergh. #wwdfashion
“You know, I think audiences expect a certain performance so I have to deliver to them what they’re expecting to a certain degree. But I’m also a different actor and a different person, I have my own spin on the character,” says @noahegalvin of his takeover of the leading role in “Dear Evan Hansen” following the departure of @bensplatt, who originated the role. Read WWD’s interview with the 23-year-old actor on WWD.com #wwdeye (📷: @jilliansollazzo)
For pre-fall 2018, @etro created richly-colored wonderland, using tapestries, textiles and wallpapers from the Eastern world at large. The line featured floral and graphic prints and jacquard motifs, like this two-piece look featured here. #wwdfashion (📷: Giovanna Pavesi)
@kith is moving into children’s. The men’s and women’s streetwear brand has launched Kidset, a Kith kids line located in New York at 64 Bleecker Street. The line includes mini versions of staple Kith pieces like the Astor bomber jacket and the Kith box logo sweatshirts, along with a wall that can display up to 120 pairs of shoes from @adidas, @newbalance, @timberland and more. #wwdfashion
“I just wanted to create this fully rounded character, but I do think what excited me most was just the opportunity to give a group of people representation that I feel needs it. I like to do characters in projects that stand for something and Karolina definitely does, so that was really exciting to me,” @ginnygardner says of her new role in @hulu’s “The Runaways.” Gardner plays Karolina Dean, a queer superhero, which is a rarity for @marvel. Read more about Gardner’s character on WWD.com #wwdeye (📷: @dandoperalski)