Business Survey Sees Consumer Price Hike
August 31, 2011
Women's Wear Daily
By Kristi Ellis
WASHINGTON — Consumer prices are expected to rise significantly this fall, painting a “dark picture” for retailers heading into the holiday season as they face a consumer with little confidence and strained purchasing power, according to a new survey from Capital Business Credit, a commercial finance company specializing in the retail sector.
The CBC survey released today shows that 83 percent of respondents expect prices of consumer goods to increase this holiday season, with one-third saying prices could rise as much as 10 to 15 percent.
The survey is based on the responses of 80 manufacturers and importers in the apparel, housewares, home furnishings, fashion accessories and furniture industries who manufacture some, if not all, of their products in China, India, Vietnam, Bangladesh and Pakistan. It was conducted the week of Aug. 1.
“Inflation is coming, and the era when retailers and manufacturers absorb price increases to protect consumers is over,” said Andrew Tananbaum, executive chairman of CBC. “Our manufacturing clients are telling us that prices for clothing, bedding and other soft goods will rise this holiday season.”
Tananbaum said all hope is not lost, however, noting, “One-third of those surveyed believe that despite current market challenges, retailers will increase inventories this holiday season.”
Sixty-four percent of manufacturers and importers reported that retail orders are the same, or less, compared with last year. Half said retailers are asking for longer payment terms during the holidays due to the increase in raw material costs, forcing suppliers to be more flexible with payment and contract terms.
As a result, “an overwhelming 95 percent of respondents indicated that their margins would be affected in some way,” according to the survey. The percentage of companies that said they would pass on increased raw material, labor and transportation costs rose from 20 percent six months ago to 30 percent in the new survey.
Apparel manufacturers and retailers have been grappling with rising labor and raw material costs in China for some time, and the survey touched on the shift in sourcing patterns that has arisen as a result. About 44 percent of those companies surveyed, which included some apparel manufacturers, said they plan to move some or all of their production out of China due to the increased cost in labor, and 71.4 percent said they are considering relocating some of their production to Vietnam.
Apparel and textile imports from China fell 10 percent in June to 2.3 billion square meter equivalents compared with a year earlier, according to the U.S. Commerce Department. Vietnam was the main beneficiary of the shift in apparel production. Combined shipments from Vietnam, the number-two apparel supplier to the U.S., which has been gaining share on China, rose 5.4 percent to 266 million SME.
Soaring cotton prices, which reached more than $2 a pound at their peak earlier this year, were a main factor in fiber content changes and sourcing shifts. Almost 95 percent of those surveyed said they saw an increase in the cost of raw materials, particularly in cotton prices, over the last 12 months.
To counter the price spikes in cotton, 33 percent said they are replacing some of their cotton content with rayon (60 percent cited this as an alternative) or Lycra spandex (40 percent). More than a quarter of the companies that have high-cotton-content products said they will vary the design of their products to use less of the natural fiber. They also noted cotton prices will directly impact retail prices this holiday season.
Cotton prices have fallen substantially of late to about $1.03 a pound, but the goods in the pipeline were made with cotton costing much more.
Rising oil prices have also been a major factor in supply chain shifts, according to 92.2 percent of the respondents. Sixty-six percent said logistics costs have increased by more than 5 percent in the last 12 months, with 58 percent citing a 5 percent increase in oil costs.
“The rising costs of raw materials, labor and logistics only magnifies the existing problems facing manufacturers, importers and retailers,” Tananbaum said. “On a bright note, looking forward to the spring season, we anticipate prices to decrease at retail, due to forward-looking data on the decline in cotton prices.”