By Rich Lindblom
With COVID-19 impacting the cost of raw materials, manufacturers have no choice but to raise wholesale prices. Price increases are happening in every industry, so why should appliances, furniture or electronics be any different?
The real question is … is this necessarily a bad thing? Personally, I don’t think so and apparently some experts seem to agree.
I read a great article by Ryan Dezember in the April 12, 2021 edition of the Wall Street Journal. In it, he talks about the global price increases on just about everything, particularly raw materials, which is something that affects all of us to some extent. As our suppliers’ cost of raw materials go up, they are left with no choice but to raise your cost of goods.
In the article, Scott Colyer, chief executive of Advisors Asset Management, which manages $38 billion in assets, said, “There is a point where the system will not tolerate increases, but we’re not in one of those places today at all. Things are lined up where this should be a pretty good party.”
And I would have to agree with him. The way I see it, so long as everyone’s prices go up, it’s actually a good thing for all of you. I may sound a little looney, but hear me out. If one of your vendors raises your cost on a product, let’s say 5 percent, they will also raise the MSRP by a similar or typically even higher amount. So how is that a bad thing? Both you and your competition are paying the same higher price for the merchandise, so no one is disadvantaged from that aspect. And if your margins remain the same (or possibly even increase), then higher prices actually result in higher dollar profits on the same product, which is a good thing for all of you.
Don’t believe me? In that same article, Jonathan Golub, chief U.S. equity strategist at Credit Suisse Group observed that “Rising material costs usually foreshadow fatter profit margins.”
Fatter profit margins. Personally, I like the sound of that.
One final quote from Dezember’s article that I believe supports my argument came from David Marberger, the finance chief at Conagra. “History shows us that price adjustments are more likely to be accepted in the market when industrywide and broad-based input cost inflation occurs,” he told analysts. “And that’s the environment we see today.”
The key point is that people get it, and the markets get it: Sometimes prices have to go up, it’s simply inevitable. No one wants to see a price increase on anything. But sometimes it’s simply a matter of perspective.
So rather than look at a price increase as a kick in the teeth, maybe you should look at it as a blessing in disguise.
Still don’t believe me? OK, how about one more argument in favor of price increases. If you own merchandise at the old pre-increase price, once the new 5 to 10 percent-higher MSRP goes into effect, you can sell it at the new higher price and now you’re making even more money.
That’s why any time a price increase was announced, instead of complaining about it, the very first thing I did was to get orders in the system, in hopes of getting my best-selling SKUs in my barn at the old price before the increase took effect. And if you’re not already doing that, I would strongly urge all of you to do the same thing when that next price increase rolls around.
I always get a kick out of it when someone reaches out to me after reading one of my articles because it struck a particular chord with them. So if you have a question or comment (good or bad) about something I wrote about, please reach out to me at firstname.lastname@example.org. I’d love to hear from you.