STORES ON HIKES: CONSUMERS JUST WON’T BUY

Byline:

NEW YORK — Raw material cost hikes will throw another dose of uncertainty into retailing this year, according to store executives, who will be confronted by tough decisions on pricing fall goods.
Generally, consumers are finicky and are spending erratically on apparel. That’s why retailers are wary of raising prices.
Instead, they are hoping that vendors, keen on gaining market share, will absorb the higher costs of cotton, rayon, polyester and nylon. A less palatable option for retailers is to eat the price increases as a means of protecting their own competitive position.
Retailers expect the pressures to raise prices, particularly in basic denim, will be intense. Suppliers already are trying to pass on cost increases in denim, some executives said.
“I think that the customer is going to dictate in the end.” said Michael Gould, chairman and chief executive officer of Bloomingdale’s. “The customer is not going to accept a price hike. The manufacturers can raise the prices, but the goods won’t sell.
“People have good on order, and people have goods on hand, so it’s not a 12 percent or 15 percent increase this moment,” Gould continued, “but it is a problem.”
Don Scasia, divisional vice president and director of merchandise development for J.C. Penney Co.’s women’s division, said the national chain expects to be hit with cost increases from its suppliers “by late summer or early fall.”
At that point, Scasia said Penney’s will have to decide whether to take lower markups or raise prices.
“Every big retailer in the U.S. will be affected in the same way,” he said. “But we’re taking a wait-and-see approach to see how the situation unravels. In some cases, makers have taken early positions on cotton, sensing that there would be a spiraling rise in prices.”
“Either they [cotton and rayon suppliers] will have to take a little thinner profit margin, or we will have to take a little thinner profit margin, or retail prices will go up,” said Brian Kendrick, vice chairman of Saks Fifth Avenue.
“We all have bottom lines to protect, and we’re going to be creative in trying to protect those bottom lines,” Kendrick added. “It’s going to be a squeeze. But there are ways of making it up. For instance, you can make it up by doing more volume.” Robert L. Mettler, president of Sears Merchandise Group, said he does not believe retailers can easily pass apparel price increases along to consumers, who are as value conscious as ever.
“The equation is value to price,” he said. “The marketplace will determine where those [increases] end up.”
One general merchandise manager for a regional discounter said the decision about whether to absorb or pass along the price increases is complicated by the “highly competitive” retail environment and that most retailers have not decided what they’re going to do.
“We’ve all got pressure on us from our ultimate boss, the customer, to keep the prices down,” he said. “So it’s a real issue.”
Still, he said, he believes retailers are looking at different ways to raise prices modestly, and some small increases are likely to be passed along to the consumer, especially if its an across-the-board hike from the manufacturer “and nobody feels that they can get a competitive advantage by being cheaper.”
“But in the highly volatile, highly visible items, you might not see the prices passed on, such as certain branded jeans or certain branded basics,” he said. “I think when you get to branded basics, it’s just much more difficult to independently raise your price. The customer is tough right now.”