Passing the Buck — Will Consumers Pay for Supplier’s Price Increases?

When I was in the UK recently, I caught up with a number of newspapers and periodicals that I used to read on a frequent basis. It reminded me how much more I like the English system of reporting the news, interjecting opinion into the story, rather than the US practice of trying to hide behind a "more objective than thou" but clearly subjective reporting approach. Regardless, one story that caught my eye was from The Guardian. It talked about how UK retailers are attempting to pass along price increases to end customers. According to the story, "British clothing retailers, facing sharp cost increases, are planning a gamble that could backfire by raising prices next year …Top chains such as Marks & Spencer Group Plc, Next Plc, Debenhams Plc and Top Shop owner Arcadia are not only struggling with higher fuel and utility bills, but also the sudden weakening of the pound and soaring cost increases from suppliers in Asia … Analysts reckon cotton fabric prices are up at least 10 percent, Chinese manufacturing wages have risen 20 percent and freight costs are estimated to be up more than 30 percent in the last year. The removal of export subsidies in China has also raised the prices retailers pay for goods."

But will UK consumers -- let alone consumers in other markets -- accept price increases in the current economic environment? Or will this lead to an inventory blood bath where stores are swimming in stock they can't sell? Only time will tell, but in my opinion, it's risky business to raise prices at a time when most customers can't even get a line of credit or a fair rate mortgage. Perhaps this will serve as a lesson for retailers to not only diversify their supply base from a geographic perspective, but also mitigate against price increases with hedges against increased raw material and transportation costs. After all, the buck doesn't stop at the cash register. It stops when you can't get consumers through the door in the first place -- not to mention the checkout aisle.

- Jason Busch

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