Price Hikes Mean Pay Raises for All

By Gordon Hecht, Serta Simmons Bedding

Whether you lean toward Keynesian or Dickensian economic theory, you can’t help noticing that prices have been going up for the last eight to 12 months.

Over the last decade or so prices have remained stable and even decreased for technology and energy. Since 2011 the cost of living only rose a meager $2 per twelve-pack.

My training in economics at my alma mater, Sagebrush State University, consisted of discussing the pros and cons of splitting eights at the blackjack table, and I don’t pretend to be an expert, but I can give some perspective on the value of rising prices, AKA inflation.

My home furnishing career began in 1973 as a delivery helper at Jay’s Furniture, Carpet & Appliances.  On a clear day you can see the (former) location from the 16th floor of Las Vegas Furniture Market, Building B. The owner promoted a $99 king-size mattress almost every week. He could do that because gas was under 40 cents a gallon and I was earning two dollars an hour. The salespeople who sold the king mattress doubled my earnings, at $4.00 commish every time they sold one.

It was an ideal situation for the time.  I could eat lunch at Mickey D’s and get change back from my dollar. Entertainment was priced at 89 cents for a six-pack of Schlitz and $2,200 bought you a decent, brand-new car.

Then things changed. Gas doubled in price, a Big Mac shot up to $1.19, and it took about three grand to buy some wheels. That $99 mattress became the $159 special, but the boss could be generous and boosted starting pay to $2.50 an hour.

Flip forward to 1980. I had my sheepskin from Tumbleweed Tech for a couple of years and scored a job making about $15,000. My new sports car set me back $8,100 and my brand new three-bedroom home (two years in the future) required a 30-year note to pay off $65,900. I could afford all of that because the king mattresses I was selling were now $499. The invisible hand of Adam Smith guided wages and profits higher, trailing every price increase. (See, I did learn a little about economics!)

Those of us who worked in the very late 1970s and early 1980s should remember the huge increases in prices, often 10 percent every four to six months.  As a salesperson, it became harder to justify value-to-cost to myself.

Luckily, my very sage store manager, Louis Landro, explained it all to me in one sentence: Every price increase is a pay increase for the salespeople.

It was true then and true now. Price increases are not limited to the products in your store. Costs are increasing for every manufacturer, so the guys and gals in the store down the street (or next city, state or across the planet) are experiencing the same jolt you are. And it’s not just our industry: Food, fuel, technology, housing (big-time), transportation and building materials are increasing in cost. You know it and your shopper knows it too.

Price increases are a hassle and a disruption in your day. You have to re-tag your store and reprice your website. So does everyone else. But that change in tag means another $25 to $100 in the register with every sale. You can’t even argue that price increases mean less sales. Increasing that $99 king mattress to $159, then to $499, and now $1,599 didn’t prevent less units from being sold, because the products were still good values in the marketplace as it stood at the time.

Price increases mean your sales team can sell the same number of units and get paid more money. Price increases also mean that the percent of sales dollars devoted to covering stable occupancy and operational costs (assuming fuel prices remain steady) decrease, generating a great net profit for you.

Nobody likes to pay more for the same product or service. It’s one of those things that are in our sphere of concern and outside our sphere of control. It’s up to you to either look at the dark side (the world is crumbling) or the lighter side (the situation is not limited to my four walls; I still have equal standing). 

Costs and prices will stabilize. They always do. We, who used to curse at dollar-a-gallon gas now cheer when it’s under $2. Ride out the adjustments, change your tags, and remember to review compensation for your hourly and salaried employees to keep them level too.

Gordon Hecht is Senior Regional Manager/Strategic Retail Group at Serta Simmons Bedding and a regular contributor to YSN. You can reach him at ghecht@sertasimmons.com.