Apparel sales could be taking a major hit soon due to the rising cost of raw materials. Cotton, for example, is up 80% since the beginning of the year. Apparel companies have tried to withstand the price increases for as long as possible because they don't want to deter the already delicate state of consumer spending. However, as the prices continue to increase, there is almost no other choice. Though they are reluctant to raise the prices, it must be done, and as a result, certain clothing prices could increase by up to 10% in the next year. In order to survive, these companies need to raise the prices. But, that same price increase could push some companies out of business. It really all depends on which companies are large enough and strong enough to handle that type of hit to the system.
This is a difficult situation for retailers, and all businesses alike. The prices of raw materials are often out of anyone's control. They simply rise and fall according to the common supply and demand model. Natural disasters have eliminated cotton supplies. What can retailers do to prevent floods and heavy rains? They have no control over that type of disaster. What can they do but raise the price when the supplies are low? These increases come at an inconvenient time, too. The recessionary time period has seriously wounded the retail/high end apparel business. Consumers were reluctant to spend in tough economic times. In the past few months, however, numbers were showing healthy increases in consumer interest in those areas. Higher prices are only going to send that consumer interest reeling again. This is a critical point that could determine which business stay in the positive and which businesses struggle.
Catherine Reeves
Source: http://online.wsj.com/article/SB10001424052702304879604575582673135103404.html?mod=WSJ_Retailing_leftHeadlines
Thank you for sharing about the concerns of rising cotton prices and the consequences to the retail industry. I recognize the difficulty faced by retailers as they are extremely worried about consumer behavior in these competitive times. It is often the retailers who take the largest hit when it comes to rising commodity prices, in this case the rise of cotton prices is too great and profit margins are obviously too little when prices remain the same. I find that cotton is no different from other commodities such as gold, which increased dramatically in recent years to a point where many retailers actually went out of business.
ReplyDeleteHopefully this latest increase won't cause consumers to lose their trust in companies value perceptions as that may lead to lost sales, and lower profits.
Written by Michael Milner
Alot of commodity prices are going up because of the demand from emerging economies. China is the world's largest consumer of cotton and while India produces the world's second largest amount of cotton, America is number one, the country has begun to limit their exports of cotton. This way, their producers who use cotton can get it at a cheaper price. As a result, retailers will have to raise prices because their input prices are larger and with alreadt weary consumers, I forsee even tougher times for retailers ahead.
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